THE  INTERNATIONAL  SCIENTIFIC  SERIES, 

VOLUME   XVII. 


1. 
II. 

III. 

IV. 

V. 

VI. 

VII. 

VIII. 

IX. 
X. 

XI. 

xi  r. 

XIII. 
XIV. 

XV. 

XVI. 
XVII. 

XVIII. 

XIX. 
XX. 

xxr. 
xxn. 


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THE   INTERNATIONAL  SCIENTIFIC  SERIES. 


MONEY  AND 
THE  MECHANISM  OF  EXCHANGE. 

UBRART  OF 
UICHM9HD  M.  SMITH 

BY 

W.    STANLEY   JEVONS,  M.A.,  F.R.S., 

PROFESSOR    OF    LOGIC   AND    POLITICAL   ECONOMY    IN   THE 
OWENS   COLLEGE,    MANCHESTER. 


NEW  YOKE: 
D.    APPLETOJST    AND    COMPANY, 

549    &    551    BROADWAY. 

1877. 


PKEFACE. 


IN  preparing  this  volume,  I  have  attempted  to  write 
a  descriptive  essay  on  the  past  and  present  monetary 
systems  of  the  world,  the  materials  employed  to  make 
money,  the  regulations  under  which  the  coins  are  struck 
and  issued,  the  natural  laws  which  govern  their  circula- 
tion, the  several  modes  in  which  they  may  be  replaced 
by  the  use  of  paper  documents,  and  finally,  the  method 
in  which  the  use  of  money  is  immensely  economized  by 
the  cheque  and  clearing  system  now  being  extended  and 
perfected. 

This  is  not  a  book  upon  the  currency  question,  as 
that  question  is  so  often  discussed  in  England.  I  have 
only  a  little  to  say  about  the  Bank  Charter  Act,  and 
upon  that,  and  other  mysteries  of  the  money  market,  I 
refer  my  readers  to  the  admirable  essay  of  Mr.  Bagehot 


VI  PREFACE. 

on  "  Lombard  Street,'*  to  which  this  book  may  perhaps 
serve  as  an  introduction. 

There  is  much  to  be  learnt  about  money  before 
entering  upon  those  abstruse  questions,  which  barely 
admit  of  decided  answers.  In  studying  a  language,  we 
begin  with  the  grammar  before  we  try  to  read  or  write. 
In  mathematics,  we  practice  ourselves  in  simple  arith- 
metic before  we  proceed  to  the  subtleties  of  algebra  and 
the  differential  calculus.  But  it  is  the  grave  misfortune 
of  the  moral  and  political  sciences,  as  well  shown  by 
Mr.  Herbert  Spencer,  in  his  "Study  of  Sociology,"  that 
they  are  continually  discussed  by  those  who  have  never 
laboured  at  the  elementary  grammar  or  the  simple 
arithmetic  of  the  subject.  Hence  the  extraordinary 
schemes  and  fallacies  every  now  and  then  put  forth. 

Currency  is  to  the  science  of  economy  what  the 
squaring  of  the  circle  is  to  geometry,  or  perpetual 
motion  to  mechanics.  If  there  were  a  writer  on  Currency 
possessing  some  of  the  humour  and  learning  of  the  late 
Professor  De  Morgan,  he  could  easily  produce  a  Budget 
of  Currency  Paradoxes  more  than  rivalling  De  Morgan's 
Circle- Squaring  Paradoxes.  There  are  men  who  spend 
their  time  and  fortunes  in  endeavouring  to  convince  a 
dull  world  that  poverty  can  be  abolished  by  the  issue  of 


PREFACE.  Vll 

printed  bits  of  paper.  I  know  one  gentleman  who  holds 
that  exchequer  bills  are  the  panacea  for  the  evils  of 
humanity.  Other  philanthropists  wish  to  make  us  all 
rich  by  coining  the  national  debt,  or  coining  the  lands  of 
bhe  country,  or  coining  everything.  Another  class  of 
persons  have  long  been  indignant  that,  in  this  age  of 
free  trade,  the  Mint  price  of  gold  should  still  remain 
arbitrarily  fixed  by  statute.  A  member  of  Parliament 
lately  discovered  a  new  grievance,  and  made  his  reputa- 
tion by  agitating  against  the  oppressive  restrictions  on 
the  coinage  of  silver  at  the  Mint.  No  wonder  so  many 
people  are  paupers  when  there  is  a  deficiency  of  shillings 
and  sixpences,  and  when  the  amount  merely  of  the  rates 
and  taxes  paid  in  a  year  exceeds  the  whole  sum  of  money 
circulating  in  the  kingdom. 

The  subject  of  money  as  a  whole  is  a  very  extensive 
one,  and  the  literature  of  it  would  fill  a  very  great 
library.  Many  changes  are  now  taking  place  in  the 
currencies  of  the  world,  and  important  inquiries  have 
been  lately  instituted  concerning  the  best  mode  of  con- 
stituting the  circulating  medium^  The  information  on 
the  subject  stored  up  in  evidence  given  before  Government 
Commissions,  in  reports  of  International  Conferences, 
or  in  researches  and  writings  of  private  individuals,  is 
quite  appalling  in  extent.  It  has  been  my  purpose  to 


Vlll  PREFACE. 

extract  from  this  mass  of  literature  just  such  facts  as 
seem  to  be  generally  interesting  and  useful  in  enabling 
the  public  to  come  to  some  conclusion  upon  many 
currency  questions  which  press  for  solution.  Shall  we 
count  in  pounds,  or  dollars,  or  francs,  or  marks  ?  Shall 
we  have  gold  or  silver,  or  gold  and  silver,  as  the  measure 
of  value?  Shall  we  employ  a  paper  currency  or  a 
metallic  one?  How  long  shall  we  in  England  allow 
our  gold  coinage  to  degenerate  in  weight?  Shall  we 
recoin  it  at  the  expense  of  the  State  or  of  the  unlucky 
individuals  who  happen  to  hold  light  sovereigns  ? 

In  America  the  questions  are  still  more  important 
and  pressing,  involving  the  return  to  specie  payments, 
the  future  regulation  of  the  paper  currency,  its  partial 
replacement  by  coin,  and  the  exact  size  and  character 
of  the  American  dollar,  regarded  in  relation  to  inter- 
national currency.  Germany  is  in  the  midst  of  a  great, 
and  probably  a  sound  and  successful,  reorganization  of 
the  currency,  both  metallic  and  paper.  In  France  the 
great  debate  upon  the  double  versus  the  single  standard 
is  hardly  yet  terminated,  and  active  measures  are  being 
taken  to  place  the  paper  issues  on  a  convertible  basis. 
Among  the  other  countries  of  Europe — Italy,  Austria, 
Holland,  Belgium,  Switzerland,  the  Scandinavian  king- 
doms and  Russia — there  is  hardly  one  which  is  not  at 


PREFACE.  IX 

present  reforming  its  currency,  or  has  lately  done  so, 
or  is  discussing  the  proper  method  of  attempting  the 
task.  As  regards  all  such  changes,  we  should  remember 
that  in  the  present  we  are  ever  moulding  the  future,  and 
that  a  world-wide  system  of  international  money,  though 
it  may  seem  impracticable  at  the  moment,  is  an  object 
at  which  all  those  should  aim  who  wish  to  leave  the 
world  better  than  they  found  it. 

I  wish  to  acknowledge  the  assistance  which  I  have  de- 
rived from  the  works  of  Mr.  Seyd,  especially  his  treatise 
on  "Bullion  and  the  Foreign  Exchanges,'*  from  Pro- 
fessor Sumner's  "History  of  the  American  Currency," 
M.  Chevalier's  work  "La  Monnaie,"  M.  Wolowski's 
various  important  publications  upon  money,  and  many 
valuable  articles  in  the  Journal  des  Economistes.  I  must 
express  my  thanks  to  many  bankers  and  gentlemen 
for  information  and  assistance  kindly  rendered  to  me, 
especially  to  Mr.  John  Mills,  Mr.  T.  E.  Wilkinson, 
Mr.  Eoberts,  the  chemist  of  the  Eoyal  Mint,  and  Mr.  E. 
Helm. 

I  should  also  like  to  take  this  opportunity  of  thank- 
ing those  gentlemen  who  have  from  time  to  time  sent 
me  documents  and  publications  bearing  upon  the  subject 
of  money,  which  have  proved  very  valuable.  I  may 


X  PREFACE. 

mention  especially  a  series  of  reports  and  documents 
concerning  the  American  mint  and  currency  received 
through  the  kindness  of  the  Director  of  the  Mint,  and  of 
Mr.  Walker  and  Mr.  E.  Dubois. 

I  am  much  indebted  to  Mr.  W.  H.  Brewer,  M.A.,  for 
carefully  reading  the  whole  of  the  proofs,  and  to  Pro- 
fessor T.  E.  Cliffe  Leslie,  Mr.  E.  H.  Inglis  Palgrave, 
and  Mr.  Frederick  Hendriks  for  examining  particular 
portions. 

May  31st,  1875. 


CONTENTS. 

CHAPTER   I. 

BARTER. 

PAGE 

Want  of  Coincidence  iii  Barter  ...  ...  ...  ...        3 

Want  of  a  Measure  of  Value  ...  ...  ...  ...  5 

Want  of  Means  of  Subdivision  ...  ...  ...  ...        6 

CHAPTER  II. 

EXCHANGE. 

Utility  and  Value  are  not  Intrinsic      ...  ...  ...  ...        9 

Value  expresses  Katio  of  Exchange  ...  ...  ...  10 

CHAPTER  III. 

THE    FUNCTIONS    OF    MONEY. 

A  Standard  of  Value  H 

A  Store  of  Value  ...  ...  ...  ...  ...  15 

Separation  of  Functions          ...  ...  ...  ...  ...       16 

CHAPTER  IV. 

EARLY   HISTORY   OF   MONEY. 

Currency  in  the  Hunting  State     ...            ...            ...  ...              19 

Currency  in  the  Pastoral  State             ...             ...  ...             ...       21 

Articles  of  Ornament  as  Currency                ...             ...  ...              24 

Currency  in  the  Agricultural  State      ...             ...  ...             ...       25 

Manufactured  and  Miscellaneous  Articles  as  Currency  ...              27 


xii  CONTENTS. 

CHAPTER  V. 

QUALITIES   OF   THE   MATERIAL   OF   MONET. 

PAGE 

1.  Utility  and  Value  ...  32 

2.  Portability 34 

3.  Indestructibility                  ...            ...            ...            ...  ...       36 

4.  Homogeneity               ...            ...            ...             ...             ...  37 

o.  Divisibility          ...             ...             ...             ...            ...        .  ...       38 

H.  Stability  of  Value       38 

7.  Cognizability       ...            ...            ...            ...            ...  ...      40 

CHAPTER  VI. 

THE   METALS   AS   MONEY. 

Iron    ...            ...            ...            ..             ...           ...           ...  43 

Lead         44 

Tin 44 

Copper      ...            ...            ...            ...            ...            ...  ...       45 

Silver               ...            ...            ...            ...            ...            ...  46 

Gold          ...            ...  ...       47 

Platinum         ...            ...            ...             ...             ...            ...  48 

Nickel       ...            ...            ...            ...  ...      49 

Other  Metals  ...            ...            ...            ...            ...             ...  51 

Alloys  of  Metals      ...            ...             ...             ...       51 

CHAPTER  VII. 
COINS. 

The  Invention  of  Coining              ...             ...            ...             ...  55 

What  is  a  Coin?      ...             ...             ...            ...             ...  ...       57 

Various  Forms  of  Coins ...             ...             ...            ...            ...  57 

The  Best  Form  for  Coins        ...             ...            ...            ...  ..        59 

Coins  as  Works  of  Art    ...             ...             ...            ..              ...  62 

Historical  Coins      ...             ...             ...             ...             ...  ...       62 

.  he  Koyal  Attribute  of  Coining  ...             ...  63 


CONTENTS.  XU1 

CHAPTER  VIII. 

THE    PRINCIPLES    OF    CIRCULATION. 

PACK 

The  Standard  Unit  of  Value                 ...             ...  ...       67 

Coin,  Money  of  Account,  and  Unit  of  Value  ...             ...              70 

Standard  and  Token  Money  ...             ...             ...  ...       74 

Metallic  and  Nominal  Values  of  Coins         ...  ...             ...              75 

Legal  Tender           ...             ,..             ...             ...  ...             ...       76 

The  Force  of  Habit  in  the  Circulation  of  Money  ...             ...               78 

Gresham's  Law       ...             ...             ...             ...  ...             ...       80 

Extension  of  Gresham's  Law        ...            ...  ...            ...              84 

CHAPTER  IX. 

SYSTEMS    OF    METALLIC   MONEY. 

Currency  by  Weight              ...             ...             ...  ...             ...       88 

Unrestricted  Currency  by  Tale     ...             ...  ...             ...              92 

Single  Legal  Tender  System                 ...             ...  ...             ...       96 

Multiple  Legal  Tender  System     ...             ...  ...             ...              98 

Composite  Legal  Tender        ...             ...             ...  ...            ...     101 

CHAPTER  X. 

THE    ENGLISH    SYSTEM    OF    METALLIC    CURRENCY. 

English  Gold  Coin          ....            ...             ...  ...             ...            105 

English  Silver  Coin                ...             ...             ...  ...     108 

English  Bronze  Coin      ...             ...             ...  ...             ...             110 

Deficiency  of  Weight  of  the  English  Gold  Coin  ...             ...     Ill 

Withdrawal  of  Light  Gold  Coin  ...             ...  ...            ...            113 

Supply  of  Gold  Coin              ...             ...             ...  ...             ...     115 

Supply  of  Silver  Coin    ...             ...             ...  ...             ...            118 

The  Royal  Mint       ...             ...                            ...  ...                    lill) 


XIV  CONTENTS. 

CHAPTER  XL 

FRACTIONAL    CURRENCY. 

PAGE 

Equivalent  Weights  of  the  Principal  Metals       ...            ...  ...     123 

Billon  Coin        125 

Composite  Coin        ...             ...            ...             ...             ...  ...     127 

Bronze  Coin       ...           -...            ...             ...             ...             ...  128 

English  Bronze  Coin               ...             ...             ...             ...  ...     129 

Weight  of  the  Currency...             ...             ...             ...             ...  130 

Nickel,  Manganese,  Aluminium,  and  other  Metals  and  Alloys  ...     132 

CHAPTER  XII. 

THE  BATTLE  OP  THE  STANDARDS. 

The  Double  Standard             ...             ...             ...             ...  ...     138 

Compensatory  Action     ...            ...            ...            ...            ...  139 

The  Demonetization  of  Silver               ...             ...             ...  ...     140 

Disadvantages  of  the  Double  Standard       ...             ...             ...  143 

The  Monetary  Systems  of  the  World  ...             ...             ...  ...     147 

CHAPTER  XIII. 

TECHNICAL   MATTERS   RELATING   TO    COINAGE. 

The  Alloy  in  Coins         ...             ...             ...             ...             ...  151 

The  Size  of  Coins    ...             ...             ...             ...            ...  ...     155 

The  Wear  of  Coins           ...             ...             ...             ...            ...  156 

Methods  of  Counting  Coins     ...           ...             ...             ...  ...     161 

Cost  of  the  Metallic  Currency       ...             ...             ...             ...  163 

CHAPTER  XIV. 

INTERNATIONAL   MONEY. 

Advantages  of  International  Money     ...             ...             ...  jg7 

Disadvantages  of  International  Money        ...             ...  169 

Conflict  of  Monetary  Systems               ...             ...  171 


CONTENTS.  XV 

TACK 

International  Monetary  Negotiations            ...           ...  ...             172 

Decimalization  of  English  Money         ...             ...  ...            ...     175 

The  Future  American  Dollar        ...             ...             ...  ...             178 

German  Monetary  Reform      ...            ...             ...  ...             ...     180 

Systems  of  Fractional  Mone          ...             ...             ...  ..              181 

Final  Selection  of  the  Unit  of  International  Money  ...             ...     184 


CHAPTER  XV. 

THE   MECHANISM    OP    EXCHANGE. 

Progressive  Development  of  the  Methods  of  Exchange  ...             ...     190 

Representative  Money      ...            ...            ...            ...  ...            191 

Cheque  and  Clearing  System               ...             ...  ...             ...     192 

CHAPTER  XVI. 

REPRESENTATIVE    MONEY. 

Early  History  of  Representative  Money             ...  ...             ,..     190 

Reasons  for  the  Use  of  Representative  Money           ...  ...            199 

Inconvenience  of  Metallic  Money         ...             ...  ...             ...     200 

The  Weight  of  Currency ...             ...  ...             202 

Saving  of  Interest  ..  ,203 


CHAPTER  XVII. 


THE  NATURE  AND  VARIETIES  OF  PROMISSORY  NOTES. 

Specific  Deposit  Warrant               ...             ...             ...  ...            207 

General  Deposit  Warrant      ...             ...             ...             ...  ...     208 

Difference  Between  a  Special  and  a  General  Promise  ...            209 

Pecuniary  Promissory  Notes ...      •       ...             ...             ...  ...     212 

Principles  of  the  Circulation  of  Representative  Money  ...            211 


XVI  CONTENTS. 

CHAPTER  XVIII. 

METHODS    OF    REGULATING    A    PAPER    CURRENCY. 

PAGE 

1.  Simple  Deposit  ...  221 

2.  Partial  Deposit 

3.  Minimum  Kcserve                     ...             ...  ..            ...            223 

4.  Proportional  Eeserve         ...            ...             ...  ».            ...     223 

5.  Maximum  Issue         ...             ...             ...  ...            ...            225 

6.  Elastic  Limit                     ...             ...             ...  ...             ...     226 

7.  Documentary  Eeserve               ...             ...  ...             ...            227 

8.  Heal  Property  Keserve      ...            ...            ...  ...             ...     228 

9.  Regulation  by  the  Foreign  Exchanges  ...             ...            229 

10.  Free  Issue  System             ...            ...            0i.  ,..            ...     230 

11.  The  Gold  Par  Method  ...  ...  231 

12.  Convertibility  by  Revenue  Payments            ...  ...             ...     232 

13.  Deferred  Convertibility            ...            ...  ...            ...            233 

14.  Inconvertible  Paper  Money             ...             ...  ...             ...     234 

Over  Issue  of  Paper  Money            ...             ...  ...             ...             235 

Want  of  Elasticity  of  Paper  Money       ...            ...  ...            ...     236 

CHAPTER  XIX. 

CREDIT   DOCUMENTS. 

Measurement  of  Credit    ...            ...            ...  ...            ...            239 

Bank-notes                ...             ...             ...             ...  ...             ...     239 

Cheques              ...             ...             ...             ...  ...             ...             240 

Bills  of  Exchange     ...             ...             ...             ...  ...             ...     244 

Interest-bearing  Documents           ...             ...            245 

Definition  of  Money                 ...             ...             ...  ...            ...     248 

CHAPTER  XX. 

BOOK  CREDIT  AND  THE  BANKING  SYSTEM. 

Single  Bank  System         ...            ...            ...  ...            ...            252 

•System  of  Two  Banks                ..             ...  251 


CONTENTS.  XV11 

PACK 

Complex  Bank  System                   ...            ..             ...  ...            255 

Branch  Bank  System               ...            ...            ...  ...            ...     257 

Bank  Agency  System       ...             ...             ...             ...  ...            259 

London  Agency  System          ...            ...            ...  ...            ...     260 

Country  Clearing  System               ...            ...            ...  ...            260 

CHAPTER  XXI. 

THE    CLEARING-HOUSE    SYSTEM. 

Transaction  of  Business  at  the  London  Clearing  House  ...            ...    265 

Manchester  Clearing  House            ...             ...             ...  ...            269 

New  York  Clearing  House     ...             ...            ...  ...            ...    278 

Extension  of  the  Clearing  System                ...             ...  ...            279 

Advantages  of  the  Cheque  and  Clearing  System  ...  ...             ...     283 

Proportion  of  Cash  Payments         ...             ...             ...  ...            285 

Cases  to  which  the  Clearing  System  is  inapplicable  ...            ...    287 

CHAPTER  XXII. 

THE    CHEQUE   BANK. 

Relation  of  the  Cheque  Bank  to  other  Banks             ...  ...            291 

The  Cheque  Bank  as  a  Monetary  Agent             ...  ...            ...     293 

Payment  of  Wages  by  Cheques      ...             ...             ...  ...            295 

The  Cheque  Bank  as  a  Savings  Bank                ...  ...            ...    296 

Results  of  the  Cheque  Bank  System           ...           ...  ...           298 

CHAPTER  XXIII. 

FOREIGN   BILLS   OF   EXCHANGE. 

Origin  and  Nature  of  Bills  of  Exchange             ...  ...            ...    300 

Trade  in  Foreign  Bills 302 

The  World's  Clearing  House 303 

Centralization  of  Financial  Transactions  in  London  ...  ...            305 

Representation  of  Foreign  Bankers  in  London    ..  ...            ...    307 


XV111 


CONTENTS. 


CHAPTER  XXIV. 

THE  BANK  OF  ENGLAND  AND  THE  MONEY  MARKET. 

PAGE 

Expansion  of  Trade          ...            ...            ...            ...            ...  310 

Competition  of  Bankers           ...             ...             ...             ...            ...  311 

The  Bank  Charter  Act  of  1844       312 

The  Free-banking  School        ...            ...            ...            ...             ...  314 

Possibility  of  Over- issue                  ...            ...            ...             ...  314 

The  Eight  of  Coining  Bank-notes          ...             ...             ...             ...  317 

Scotch  and  English  Banking         ...              ..             ...            ...  319 

Cash  Keserves  of  Bankers       ...            ...             ...             ...             ...  320 

Remedy  for  the  Sensitiveness  of  tho  Money  Market ...            ...  322 


CHAPTER  XXV. 

A   TABULAR    STANDARD    OF    VALUE. 

Corn  Kents 

A  Multiple  Legal  Tender 

Lowe's  Proposed  Table  of  Reference 

Poulett  Scrope's  Tabular  Standard  of  Value     ... 

Difficulties  of  the  Scheme 


326 
327 
328 
329 
331 


CHAPTER  XXVI. 

THE    QUANTITY    OF    MONEY   NEEDED   BY  A   NATION. 

Quantity  of  Work  to  be  done  by  Money  ...  ... 

Efficiency  of  the  Currency 

Effects  of  the  Cheque  and  Clearing  System 

Conclusion 

TNDEX. 


335 
336 
337 
340 
343 


MONEY 

AND  THE  MECHANISM  OF  EXCHANGE, 


CHAPTEE  L 

BAETEE. 

SOME  years  since,  Mademoiselle  Zelie,  a  singer  of  the 
Theatre  Lyrique  at  Paris,  made  a  professional  tour  round 
the  world,  and  gave  a  concert  in  the  Society  Islands. 
In  exchange  for  an  air  from  Norma  and  a  few  other 
songs,  she  was  to  receive  a  third  part  of  the  receipts. 
When  counted,  her  share  was  found  to  consist  of  three 
pigs,  twenty-three  turkeys,  forty-four  chickens,  five 
thousand  cocoa-nuts,  besides  considerable  quantities  of 
bananas,  lemons,  and  oranges.  At  the  Halle  in  Paris, 
as  the  prima  donna  remarks  in  her  lively  letter,  printed 
by  M.  Wolowski,  this  amount  of  live  stock  and  vegetables 
might  have  brought  four  thousand  francs,  which  would 
have  been  good  remuneration  lor  five  songs.  In  the 
Society  Islands,  however,  pieces  of  money  were  very 
scarce;  and  as  Mademoiselle  could  not  consume  any 


,     &IONEY. 

considerable  portion  of  th,e  receipts  herself,  it  became 
necessary  'in  tLe  mean  fime  to  feed  the  pigs  and  poultry 
wiih  the  fruit*. 

When  Mr.  Wallace  was  travelling  in  the  Malay 
Archipelago,  he  seems  to  have  suffered  rather  from  the 
scarcity  than  the  superabundance  of  provisions.  In  his 
most  interesting  account  of  his  travels,  he  tells  us  that 
in  some  of  the  islands,  where  there  was  no  proper 
currency,  he  could  not  procure  supplies  for  dinner  with- 
out a  special  bargain  and  much  chaffering  upon  each 
occasion.  If  the  vendor  of  fish  or  other  coveted  eatables 
did  not  meet  with  the  sort  of  exchange  desired,  he  would 
pass  on,  and  Mr.  Wallace  and  his  party  had  to  go  without 
their  dinner.  It  therefore  became  very  desirable  to  keep 
on  hand  a  supply  of  articles,  such  as  knives,  pieces  of 
cloth,  arrack,  or  sago  cakes,  to  multiply  the  chance  that 
one  or  other  article  would  suit  the  itinerant  merchant. 

In  modern  civilized  society  the  inconveniences  of  the 
primitive  method  of  exchange  are  wholly  unknown,  and 
might  almost  seem  to  be  imaginary.  Accustomed  from 
our  earliest  years  to  the  use  of  money,  we  are  unconscious 
of  the  inestimable  benefits  which  it  confers  upon  us; 
and  only  when  we  recur  to  altogether  different  states 
of  society  can  we  realize  the  difficulties  which  arise  in 
its  absence.  It  is  even  surprising  to  be  reminded  that 
barter  is  actually  the  sole  method  of  commerce  among 
many  uncivilized  races.  There  is  something  absurdly 
incongruous  in  the  fact  that  a  joint-stock  company, 
called  "  The  African  Barter  Company,  Limited,"  exists 
in  London,  which  carries  on  its  transactions  upon  the 


BARTER.  8 

West  Coast  of  Africa  entirely  by  bartering  European 
manufactures  for  palm  oil,  gold  dust,  ivory,  cotton, 
coffee,  gum,  and  other  raw  produce. 

The  earliest  form  of  exchange  must  have  consisted 
in  giving  what  was  not  wanted  directly  for  that  which 
was  wanted.  This  simple  traffic  we  call  barter  or  truck, 
the  French  troc,  and  distinguish  it  from  sale  and  pur- 
chase in  which  one  of  the  articles  exchanged  is  intended 
to  be  held  only  for  a  short  time,  until  it  is  parted  with 
in  a  second  act  of  exchange.  The  object  which  thus 
temporarily  intervenes  in  sale  and  purchase  is  money. 
At  first  sight  it  might  seem  that  the  use  of  money  only 
doubles  the  trouble,  by  making  two  exchanges  necessary 
where  one  was  sufficient ;  but  a  slight  analysis  of  the 
difficulties  inherent  in  simple  barter  shows  that  the 
balance  of  trouble  lies  quite  in  the  opposite  direction. 
Only  by  such  an  analysis  can  we  become  aware  that 
money  performs  not  merely  one  service  to  us,  but  several 
different  services,  each  indispensable. '  Modern  society 
could  not  exist  in  its  present  complex  form  without  the 
means  which  money  constitutes  of  valuing,  distributing, 
and  contracting  for  commodities  of  various  kinds. 

Want  of  Coincidence  in  Barter. 

The  first  difficulty  in  barter  is  to  find  two  persons 
whose  disposable  possessions  mutually  suit  each  other's 
wants.  There  may  be  many  people  wanting,  and  many 
possessing  those  things  wanted ;  but  to  allow  of  an  act 
of  barter,  there  must  be  a  double  coincidence,  which 


4  MONEY. 

will  rarely  happen.  A  hunter  having  returned  from 
a  successful  chase  has  plenty  of  game,  and  may  want 
arms  and  ammunition  to  renew  the  chase.  But  those 
who  have  arms  may  happen  to  be  well  supplied  with 
game,  so  that  no  direct  exchange  is  possible.  In  civilized 
society  the  owner  of  a  house  may  find  it  unsuitable,  and 
may  have  his  eye  upon  another  house  exactly  fitted  to 
his  needs.  But  even  if  the  owner  of  this  second  house 
wishes  to  part  with  it  at  all,  it  is  exceedingly  unlikely 
that  he  will  exactly  reciprocate  the  feelings  of  the  first 
owner,  and  wish  to  barter  houses.  Sellers  and  pur- 
chasers can  only  be  made  to  fit  by  the  use  of  some 
commodity,  some  marcliandise  banale,  as  the  French 
call  it,  which  all  are  willing  to  receive  for  a  time,  so 
that  what  is  obtained  by  sale  in  one  case,  may  be  used 
in  purchase  in  another.  This  common  commodity  is 
called  a  medium  of  exchange,  because  it  forms  a  third  or 
intermediate  term  in  all  acts  of  commerce. 

"Within  the  last  few  years  a  curious  attempt  has  been 
made  to  revive  the  practice  of  barter  by  the  circula- 
tion of  advertisements.  The  Exchange  and  Mart  is  a 
newspaper  which  devotes  itself  to  making  known  all 
the  odd  property  which  its  advertisers  are  willing  to 
give  for  some  coveted  article.  One  person  has  some  old 
coins  and  a  bicycle,  and  wants  to  barter  them  for  a  good 
concertina.  A  young  lady  desires  to  possess  "  Middle- 
march,"  and  offers  a  variety  of  old  songs,  of  which  she 
has  become  tired.  Judging  from  the  size  and  circula- 
tion of  the  paper,  and  the  way  in  which  its  scheme  has 
been  imitated  by  some  other  weekly  papers,  we  must 


BARTZR.  6 

assume  that  the  offers  are  sometimes  accepted,  and  that 
the  printing  press  can  bring  about,  in  some  degree,  the 
double  coincidence  necessary  to  an  act  of  barter. 

Want  of  a  Measure  of -Value. 

A  second  difficulty  arises  in  barter.  At  what  rate  is 
any  exchange  to  be  made?  If  a  certain  quantity  of 
beef  be  given  for  a  certain  quantity  of  corn,  and  in  like 
manner  corn  be  exchanged  for  cheese,  and  cheese  for 
eggs,  and  eggs  for  flax,  and  so  on,  still  the  question  will 
arise — How  much  beef  for  how  much  flax,  or  how  much 
of  any  one  commodity  for  a  given  quantity  of  another  ? 
In  a  state  of  barter  the  price-current  list  would  be  a 
most  complicated  document,  for  each  commodity  would 
have  to  be  quoted  in  terms  of  every  other  commodity, 
or  else  complicated  rule-of-three  sums  would  become 
necessary.  Between  one  hundred  articles  there  must 
exist  no  less  than  4950  possible  ratios  of  exchange,  and 
all  these  ratios  must  be  carefully  adjusted  so  as  to  be 
consistent  with  each  other,  else  the  acute  trader  will  be 
able  to  profit  by  buying  from  some  and  selling  to  others. 

All  such  trouble  is  avoided  if  any  one  commodity  be 
chosen,  and  its  ratio  of  exchange  with  each  other  com- 
modity be  quoted.  Knowing  how  much  corn  is  to  be 
bought  for  a  pound  of  silver,  and  also  how  much  flax 
for  the  same  quantity  of  silver,  we  learn  without  further 
trouble  how  much  corn  exchanges  for  so  much  flax.  The 
chosen  commodity  becomes  a  common  denominator  or  com- 
mon measure  of  value,  in  terms  of  which  we  estimate  the 


6  MONEY. 

values  of  all  other  goods,  so  that  their  values  become 
capable  of  the  most  easy  comparison. 


Want  of  Means  of  Subdivision. 

A  third  but  it  maybe  a  minor  inconvenience  of  barter 
arises  from  the  impossibility  of  dividing  many  kinds  of 
goods.  A  store  of  corn,  a  bag  of  gold  dust,  a  carcase  of 
meat,  may  be  portioned  out,  and  more  or  less  may  be  given 
in  exchange  for  what  is  wanted.  But  the  tailor,  as  we 
are  reminded  in  several  treatises  on  political  economy, 
may  have  a  coat  ready  to  exchange,  but  it  much  exceeds 
in  value  the  bread  which  he  wishes  to  get  from  the 
baker,  or  the  meat  from  the  butcher.  He  cannot  cut 
the  coat  up  without  destroying  the  value  of  his  handi- 
work. It  is  obvious  that  he  needs  some  medium  of  ex- 
change, into  which  he  can  temporarily  convert  the  coat, 
so  that  he  may  give  a  part  of  its  value  for  bread,  and 
other  parts  for  meat,  fuel,  and  daily  necessaries,  retain- 
ing perhaps  a  portion  for  future  use.  Further  illus- 
tration is  needless;  for  it  is  obvious  that  we  need  a  means 
of  dividing  and  distributing  value  according  to  our 
varying  requirements. 

In  the  present  day  barter  still  goes  on  in  some 
cases,  even  in  the  most  advanced  commercial  countries, 
but  only  when  its  inconveniences  are  not  experienced. 
Domestic  servants  receive  part  of  their  wages  in  board 
and  lodging :  the  farm  labourer  may  partially  receive  pay- 
ment in  cider,  or  barley,  or  the  use  of  a  piece  of  land. 
It  has  always  been  usual  for  the  miller  to  be  paid  by  a 


BARTER.  7 

portion  of  the  corn  which  he  grinds.  The  truck  or  barter 
s}Tstem,  by  which  workmen  took  their  wages  in  kind, 
has  hardly  yet  been  extinguished  in  some  parts  of  Eng- 
land. Pieces  of  land  are  occasionally  exchanged  by 
adjoining  landowners ;  but  all  these  are  comparatively 
trifling  cases.  In  almost  all  acts  of  exchange  money 
now  intervenes  in  one  way  or  other,  and  even  when  it 
does  not  pass  from  hand  to  hand,  it  serves  as  the 
measure  by  which  the  amounts  given  and  received  are 
estimated.  Commerce  begins  with  barter,  and  in  a 
certain  sense  it  returns  to  barter ;  but  the  last  form  of 
barter,  as  we  shall  see,  is  very  different  from  the  first 
form.  By  far  the  greater  part  of  commercial  payments 
are  made  at  the  present  day  in  England  apparently 
without  the  aid  of  metallic  money ;  but  they  are  readily 
adjusted,  because  money  acts  as  the  common  denomin- 
ator, and  what  is  bought  in  one  direction  is  balanced 
off  against  what  is  sold  in  another  direction. 


CHAPTEE  It 

EXCHANGE. 

MONEY  is  tlie  measure  and  standard  of  value  and  the 
medium  of  exchange,  yet  it  is  not  necessary  that  I 
should  enter  upon  more  than  a  very  brief  discussion 
concerning  the  nature  of  value,  and  the  advantage  of 
exchange.  Every  one  must  allow  that  the  exchange  of 
commodities  depends  upon  the  obvious  principle  that 
each  of  our  wants  taken  separately  requires  a  limited 
quantity  of  some  article  to  produce  satisfaction.  Hence 
as  each  want  becomes  fully  satiated,  our  desire,  as  Senior 
so  well  remarked,  is  for  variety,  that  is,  for  the  satisfac- 
tion of  some  other  want.  The  man  who  is  supplied 
daily  with  three  pounds  of  bread,  will  not  desire  more 
bread;  but  he  will  have  a  strong  inclination  for  beef, 
and  tea,  and  alcohol.  If  he  happen  to  meet  with  a 
person  who  has  plenty  of  beef  but  no  bread,  each  will 
give  that  which  is  less  desired  for  that  which  is  more 
desired.  Exchange  has  been  called  the  barter  of  the 
superfluous  for  the  necessary,  and  this  definition  will 
be  correct  if  we  state  it  as  the  barter  of  the  comparatively 
superfluous  for  the  comparatively  necessary. 


EXCHANGE.  9 

It  is  impossible,  indeed,  to  decide  exactly  how  much 
bread,  or  beef,  or  tea,  or  how  many  coats  and  hats  a 
person  needs.  There  is  no  precise  limit  to  our  desires, 
and  we  can  only  say,  that  as  we  have  a  larger  supply  of  a 
substance,  the  urgency  of  our  need  for  more  is  in  some 
proportion  weakened.  A  cup  of  water  in  the  desert,  or 
upon  the  field  of  battle,  may  save  life,  and  become 
infinitely  useful.  Two  or  three  pints  per  day  for  each 
person  are  needful  for  drinking  and  cooking  purposes. 
A  gallon  or  two  per  day  are  highly  requisite  for  cleanli- 
ness ;  but  we  soon  reach  a  point  at  which  further  supplies 
of  water  are  of  very  minor  importance.  A  modern  town 
population  is  found  to  be  satisfied  with  about  twenty-five 
gallons  per  head  per  day  for  all  purposes,  and  a  further 
supply  would  possess  little  utility.  Water,  indeed,  may 
be  the  reverse  of  useful,  as  in  the  case  of  a  flood,  or  a 
damp  house,  or  a  wet  mine. 

Utility  and  Value  are  not  intrinsic. 

It  is  only,  then,  when  supplied  in  moderate  quantities, 
and  at  the  right  time,  that  a  thing  can  be  said  to  be 
useful.  Utility  is  not  a  quality  intrinsic  in  a  substance, 
for,  if  it  were,  additional  quantities  of  the  same  substance 
would  always  be  desired,  however  much  we  previously 
possessed.  We  must  not  confuse  the  usefulness  of  a 
thing  with  the  physical  qualities  upon  which  the  useful- 
ness depends.  Utility  and  value  are  only  accidents  of  a 
thing  arising  from  the  fact  that  some  one  wants  it,  and 
the  degree  of  the  utility  and  the  amount  of  resulting 


10  MONEY. 

value  will  depend  upon  the  extent  to  which  the  desire  for 
it  has  been  previously  gratified. 

Regarding  utility,  then,  as  constantly  varying  in 
degree,  and  as  variable  even  for  each  different  portion  of 
commodity,  it  is  not  difficult  to  see  that  we  exchange 
those  parts  of  our  stock  which  have  a  low  degree  of 
utility  to  us,  for  articles  which,  being  of  low  utility 
to  others,  are  much  desired  by  us.  This  exchange 
is  continued  up  to  the  point  at  which  the  next  portion 
given  would  be  equally  useful  to  us  with  that  received,  so 
that  there  is  no  gain  of  utility :  there  would  be  a  loss 
in  carrying  the  exchange  further.  Upon  these  consider- 
ations it  is  easy  to  construct  a  theory  of  the  nature  of 
exchange  and  value,  which  has  been  explained  in  my 
book*  called  "  The  Theory  of  Political  Economy."  It  is 
there  shown  that  the  well-known  laws  of  supply  and 
demand  follow  from  this  view  of  utility,  and  thus  yield  a 
verification  of  the  theory.  Since  the  publication  of  the 
work  named,  M.  Leon  Walras,  the  ingenious  professor 
of  political  economy  at  Lausanne,  has  independently 
arrived  at  the  same  theory  of  exchange,f  a  remarkable 
confirmation  of  its  truth. 

Value  expresses  Eatio  of  Exchange. 

We  must  now  fix  our  attention  upon  the  fact  that, 
in  every  act  of  exchange,  a  definite  quantity  of  one  sub- 

*  "  The  Theory  of  Political  Economy."    8vo.    1871  (Macmillan). 
f  Walras,   Elements  d'JSconomie  politique  pure.      Lausanne,  Paris 
(Gaillaumin),  1874. 


EXCHANGE.  11 

stance  is  exchanged  for  a  definite  quantity  of  another. 
The  things  bartered  may  be  most  various  in  character, 
and  may  be  variously  measured.  We  may  give  a  weight 
of  silver  for  a  length  of  rope,  or  a  superficial  extent  of 
carpet,  or  a  number  of  gallons  of  wine,  or  a  certain  horse- 
power of  force,  or  conveyance  over  a  certain  distance. 
The  quantities  to  be  measured  maybe  expressed  in  terms 
of  space,  time,  mass,  force,  energy,  heat,  or  any  other 
physical  units.  Yet  each  exchange  will  consist  in  giving 
so  many  units  of  one  thing  for  so  many  units  of  another, 
each  measured  in  its  appropriate  way. 

Every  act  of  exchange  thus  presents  itself  to  us  in  the 
form  of  a  ratio  "between  two  numbers.  The  word  value  is 
commonly  used,  and  if,  at  current  rates,  one  ton  of 
copper  exchanges  for  ten  tons  of  bar  iron,  it  is  usual  to 
say  that  the  value  of  copper  is  ten  times  that  of  the  iron, 
weight  for  weight.  For  our  purpose,  at  least,  this  use  of 
the  word  value  is  only  an  indirect  mode  of  expressing 
a  ratio.  When  we  say  that  gold  is  more  valuable  than 
silver,  we  mean  that,  as  commonly  exchanged,  the  weight 
of  silver  exceeds  that  of  the  gold  given  for  it.  If  the 
value  of  gold  rises  compared  with  that  of  silver,  then  still 
more  silver  is  given  for  the  same  quantity  of  gold.  But 
value  like  utility  is  no  intrinsic  quality  of  a  thing ;  it  is  an 
extrinsic  accident  or  relation.  We  should  never  speak  of 
the  value  of  a  thing  at  all  without  having  in  our  minds 
the  other  thing  in  regard  to  which  it  is  valued.  The 
very  same  substance  may  rise  and  fall  in  value  at  the 
same  time.  If,  in  exchange  for  a  given  weight  of  gold, 
I  can  get  more  silver,  but  less  copper,  than  I  used  to  do, 


12  MONEY. 

the  value  of  gold  has  risen  with  respect  to  silver,  but 
fallen  with  respect  to  copper.  It  is  evident  that  an  in- 
trinsic property  of  a  thing  cannot  both  increase  and 
decrease  at  the  same  time ;  therefore  value  must  be  a 
mere  relation  or  accident  of  a  thing  as  regards  other 
things  and  the  persons  needing  them. 


CHAPTER  HI. 

THE  FUNCTIONS  OF  MONEY. 

WE  have  seen  that  three  inconveniences  attach  to  the 
practice  of  simple  barter,  namely,  the  improbability  of 
coincidence  between  persons  wanting  and  persons  possess- 
ing ;  the  complexity  of  exchanges,  which  are  not  made  in 
terms  of  one  single  substance ;  and  the  need  of  some  means 
of  dividing  and  distributing  valuable  articles.  Money 
remedies  these  inconveniences,  and  thereby  performs  two 
distinct  functions  of  high  importance,  acting  as — 

(1)  A  medium  of  exchange. 

(2)  A  common  measure  of  value. 

In  its  first  form  money  is  simply  any  commodity 
esteemed  by  all  persons,  any  article  of  food,  clothing, 
or  ornament  which  any  person  will  readily  receive, 
and  which,  therefore,  every  person  desires  to  have  by 
him  in  greater  or  less  quantity,  in  order  that  he  may 
have  the  means  of  procuring  necessaries  of  life  at  any 
time.  Although  many  commodities  may  be  capable  of 
performing  this  function  of  a  medium  more  or  less 
perfectly,  some  one  article  will  usually  be  selected,  as 
money  par  excellence,  by  custom  or  the  force  of  circum- 
stances. This  article  will  then  begin  to  be  used  as  a 


14  MONEY. 

measure  of  value.  Being  accustomed  to  exchange  things 
frequently  for  sums  of  money,  people  learn  the  value  of 
other  articles  in  terms  of  money,  so  that  all  exchanges 
will  most  readily  be  calculated  and  adjusted  by  com- 
parison of  the  money  values  of  the  things  exchanged. 

A  Standard  of  Value. 

A  third  function  of  money  soon  develops  itself. 
Commerce  cannot  advance  far  before  people  begin  to 
borrow  and  lend,  and  debts  of  various  origin  are  con- 
tracted. It  is  in  some  cases  usual,  indeed,  to  restore  the 
very  same  article  which  was  borrowed,  and  in  almost 
every  case  it  would  be  possible  to  pay  back  in  the  same 
kind  of  commodity.  If  corn  be  borrowed,  corn  might  be 
paid  back,  with  interest  in  corn ;  but  the  lender  will  often 
not  wish  to  have  things  returned  to  him  at  an  uncertain 
time,  when  he  does  not  much  need  them,  or  when  their 
value  is  unusually  low.  A  borrower,  too,  may  need  several 
different  kinds  of  articles,  which  he  is  not  likely  to  obtain 
from,  one  person ;  hence  arises  the  convenience  of  borrow- 
ing and  lending  in  one  generally  recognized  commodity,  of 
which  the  value  varies  little.  Every  person  making  a 
contract  by  which  he  will  receive  something  at  a  future 
day,  will  prefer  to  secure  the  receipt  of  a  commodity  likely 
to  be  as  valuable  then  as  now.  This  commodity  will 
usually  be  the  current  money,  and  it  will  thus  come  to 
perform  the  function  of  a  standard  of  value.  We  must 
not  suppose  that  the  substance  serving  as  a  standard 
of  value  is  really  invariable  in  value,  but  merely  that 


THE   FUNCTIONS   OP   MONEY.  15 

it  is  chosen  as  that  measure  by  which  the  value  of  future 
payments  is  to  be  regulated.  Bearing  in  mind  that  value 
is  only  the  ratio  of  quantities  exchanged,  it  is  certain  that 
no  substance  permanently  bears  exactly  the  same  value 
relatively  to  another  commodity ;  but  it  will,  of  course,  be 
desirable  io  select  as  the  standard  of  value  that  which 
appears  likely  to  continue  to  exchange  for  many  other 
commodities  in  nearly  unchanged  ratios. 

A  Store  of  Value. 

It  is  worthy  of  inquiry  whether  money  does  not  also 
serve  a  fourth  distinct  purpose — that  of  embodying  value 
in  a  convenient  form  for  conveyance  to  distant  places. 
Money,  when  acting  as  a  medium  of  exchange,  circulates 
backwards  and  forwards  near  the  same  spot,  and  may 
sometimes  return  to  the  same  hands  again  and  again. 
It  subdivides  and  distributes  property,  and  lubricates  the 
action  of  exchange.  But  at  times  a  person  needs  to 
condense  his  property  into  the  smallest  compass,  so  that 
he  may  hoard  it  away  for  a  time,  or  carry  it  with  him  on 
a  long  journey,  or  transmit  it  to  a  friend  in  a  distant 
country.  Something  which  is  very  valuable,  although  of 
little  bulk  and  weight,  and  which  will  be  recognised  as 
very  valuable  in  every  part  of  the  world,  is  necessary 
for  this  purpose.  The  current  money  of  a  country  is 
perhaps  more  likely  to  fulfil  these  conditions  than  any- 
thing else,  although  diamonds  and  other  precious  stones, 
and  articles  of  exceptional  beauty  and  rarity,  might 
occasionally  be  employed. 


16  MONEY. 

The  use  of  esteemed  articles  as  a  store  or  medium  for 
conveying  value  may  in  some  cases  precede  their  employ- 
ment as  currency.  Mr.  Gladstone  states  that  in  the 
Homeric  poems  gold  is  mentioned  as  being  hoarded  and 
treasured  up,  and  as  being  occasionally  used  in  the 
payment  of  services,  before  it  became  the  common 
measure  of  value,  oxen  being  then  used  for  the  latter 
purpose.  Historically  speaking,  such  a  generally 
esteemed  substance  as  gold  seems  to  have  served,  firstly, 
as  a  commodity  valuable  for  ornamental  purposes ; 
secondly,  as  stored  wealth;  thirdly,  as  a  medium  of 
exchange ;  and,  lastly,  as  a  measure  of  value. 

Separation  of  Functions. 

It  is  in  the  highest  degree  important  that  the  reader 
should  discriminate  carefully  and  constantly  between 
the  four  functions  which  money  fulfils,  at  least  in  modern 
societies.  We  are  so  accustomed  to  use  the  one  same 
substance  in  all  the  four  different  ways,  that  they  tend 
to  become  confused  together  in  thought.  We  come  to 
regard  as  almost  necessary  that  union  -of  functions 
which  is,  at  the  most,  a  matter  of  convenience,  and  may 
not  always  be  desirable.  We  might  certainly  employ 
one  substance  as  a  medium  of  exchange,  a  second  as  a 
measure  of  value,  a  third  as  a  standard  of  value,  and 
a  fourth  as  a  store  of  value.  In  buying  and  selling  we 
might  transfer  portions  of  gold ;  in  expressing  and  cal- 
culating prices  we  might  speak  in  terms  of  silver  ;  when 
we  wanted  to  make  long  leases  we  might  define  the  rent 


THE   FUNCTIONS   OF   MONEY.  17 

in  terms  of  wheat,  and  when  we  wished  to  carry  our 
riches  away  we  might  condense  it  into  the  form  of 
precious  stones.  This  use  of  different  commodities  for 
each  of  the  functions  of  money  has  in  fact  been  partially 
carried  out.  In  Queen  Elizabeth's  reign  silver  was  the 
common  measure  of  value ;  gold  was  employed  in  large 
payments  in  quantities  depending  upon  its  current  value 
in  silver,  while  corn  was  required  by  the  Act  18th 
Elizabeth,  c.  VI.  (1576),  to  be  the  standard  of  value  in 
drawing  the  leases  of  certain  college  lands. 

There  is  evident  convenience  in  selecting,  if  possible, 
one  single  substance  which  can  serve  all  the  functions  of 
money.  It  will  save  trouble  if  we  can  pay  in  the  same 
money  in  which  the  prices  of  things  are  calculated.  As 
few  people  have  the  time  or  patience  to  investigate  closely 
the  history  of  prices,  they  will  probably  assume  that  the 
money  in  which  they  make  all  minor  and  temporary 
bargains,  is  also  the  best  standard  in  which  to  register 
debts  and  contracts  extending  over  many  years.  A  great 
mass  of  payments  too  are  invariably  fixed  by  law,  such 
as  tolls,  fees,  and  tariffs  of  charges:  many  other  pay- 
ments are  fixed  by  custom.  Accordingly,  even  if  the 
medium  of  exchange  varied  considerably  in  value,  people 
would  go  on  making  their  payments  in  terms  of  it,  as  if 
there  had  been  no  variation,  some  gaining  at  the  expense 
of  others. 

One  of  our  chief  tasks  in  this 'book  will  be  to  consider 
the  various  materials  which  have  been  employed  as 
money,  or  have  been,  or  may  be,  suggested  for  the  pur- 
pose. It  must  be  our  endeavour,  if  possible,  to  discover 


18  MONEY. 

some  substance  which  will  in  the  highest  degree  combine 
the  characters  requisite  for  all  the  different  functions  of 
money,  but  we  must  bear  in  mind  that  a  partition  of 
these  functions  amongst  different  substances  is  practic- 
able. We  will  first  proceed  to  a  brief  review  of  the  very 
various  ways  in  which  the  need  of  currency  has  been 
supplied  from  the  earliest  ages,  and  we  will  afterwards 
analyse  the  physical  qualities  and  circumstances  which 
render  the  substances  employed  more  or  less  suited  to 
the  purpose  to  which  they  were  applied.  We  may  thus 
arrive  at  some  decision  as  to  the  exact  nature  of  the 
commodity  which  is  best  adapted  to  meet  our  needs  in  the 
present  day. 


CHAPTEK  IV. 

EARLY  HISTORY  OF  MONEY. 

LIVING  in  civilized  communities,  and  accustomed  to  the  use 
of  coined  metallic  money,  we  learn  to  identify  money  with 
gold  and  silver;  hence  spring  hurtful  and  insidious 
fallacies.  It  is  always  useful,  therefore,  to  be  reminded  of 
the  truth,  so  well  stated  by  Turgot,  that  every  kind  of  mer- 
chandise has  the  two  properties  of  measuring  value  and 
transferring  value.  It  is  entirely  a  question  of  degree 
what  commodities  will  in  any  given  state  of  society  form 
the  most  convenient  currency,  and  this  truth  will  be  best 
impressed  upon  us  by  a  brief  consideration  of  the  very 
numerous  things  which  have  at  one  time  or  other  been 
employed  as  money.  Though  there  are  many  numis- 
matists and  many  political  economists,  the  natural 
history  of  money  is  almost  a  virgin  subject,  upon  which 
I  should  like  to  dilate;  but  the  narrow  limits  of  my  space 
forbid  me  from  attempting  more  than  a  brief  sketch  of 
the  many  interesting  facts  which  may  be  collected. 

Currency  in  the  Hunting  State. 

Perhaps  the  most  rudimentary  state  of  industry  is 
that  in  which   subsistence  is  gained  by  hunting  wild 


20  MONEY. 

animals.  The  proceeds  of  the  chase  would,  in  such  a 
state,  be  the  property  of  most  generally  recognised  value. 
The  meat  of  the  animals  captured  would,  indeed,  be  too 
perishable  in  nature  to  be  hoarded  or  often  exchanged  ; 
but  it  is  otherwise  with  ihe  skins,  which,  being  preserved 
and  valued  for  clothing,  became  one  of  the  earliest 
materials  of  currency.  Accordingly,  there  is  abundant 
evidence  that  furs  or  skins  were  employed  as  money  in 
many  ancient  nations.  They  serve  this  purpose  to  the 
present  day  in  some  parts  of  the  world. 

In  the  book  of  Job  (ii.  4)  we  read,  "  Skin  for  skin, 
yea,  all  that  a  man  hath  will  he  give  for  his  life ; "  a 
statement  clearly  implying  that  skins  were  taken  as  the 
representative  of  value  among  the  ancient  Oriental 
nations.  Etymological  research  shows  that  the  same 
may  be  said  of  the  northern  nations  from  the  earliest 
times.  In  the  Esthonian  language  the  word  rdha 
generally  signifies  money,  but  its  equivalent  in  the  kin- 
dred Lappish  tongue  has  not  yet  altogether  lost  the 
original  meaning  of  skin  or  fur.  Leather  money  is  said 
to  have  circulated  in  Eussia  as  late  as  the  reign  of 
Peter  the  Great,  and  it  is  worthy  of  notice,  that  classical 
writers  have  recorded  traditions  to  the  effect  that  the 
earliest  currency  used  at  Eome,  Lacedaemon,  and  Car- 
thage, was  formed  of  leather. 

We  need  not  go  back,  however,  to  such  early  times  to 
study  the  use  of  rude  currencies.  In  the  traffic  of  the 
Hudson's  Bay  Company  with  the  North  American 
Indians,  furs,  in  spite  of  their  differences  of  quality  and 
size,  long  formed  the  medium  of  exchange.  It  is  very 


EARLY   HISTORY   OF   MONEY.  21 

instructive,  and  corroborative  of  the  previous  evidence  to 
find  that,  even  after  the  use  of  coin  had  become  common 
among  the  Indians  the  skin  was  still  commonly  used  as 
the  money  of  account.  Thus  Whymper  says,*  "  a  gun, 
nominally  worth  about  forty  shillings,  brought  twenty 
'  skins.'  This  term  is  the  old  one  employed  by  the 
company.  One  skin  (beaver)  is  supposed  to  be  worth 
two  shillings,  and  it  represents  two  marten,  and  so  on. 
You  heard  a  great  deal  about  '  skins'  at  Fort  Yukon,  as 
the  workmen  were  also  charged  for  clothing,  etc.,  in  this 
way." 

Currency  in  the  Pastoral  State. 

In  the  next  higher  stage  of  civilization,  the  pastoral 
state,  sheep  and  cattle  naturally  form  the  most  valuable 
and  negotiable  kind  of  property.  They  are  easily  trans- 
ferable, convey  themselves  about,  and  can  be  kept  for 
many  years,  so  that  they  readily  perform  some  of  the 
functions  of  money. 

We  have  abundance  of  evidence,  traditional,  written, 
and  etymological,  to  show  this.  In  the  Homeric  poems 
oxen  are  distinctly  and  repeatedly  mentioned  as  the 
commodity  in  terms  of  which  other  objects  are  valued. 
The  arms  of  Diomed  are  stated  to  be  worth  nine  oxen, 
and  are  compared  with  those  of  Glaucos,  worth  one 
hundred.  The  tripod,  the  first  prize  for  wrestlers  in  the 
23rd  Iliad,  was  valued  at  twelve  oxen,  and  a  woman 
captive,  skilled  in  industry,  at  four.f  It  is  peculiarly 

*  "  Travels  in  Alaska,  etc.,"  by  F.  Whympei,  p,  225. 
f  Gladstone,  "  Juventus  Mundi,"  p.  534. 


22  MONEY. 

interesting  to  find  oxen  thus  used  as  the  common 
measure  of  value,  because  from  other  passages  it  is 
probable,  as  already  mentioned,  that  the  precious  metals, 
though  as  yet  uncoined,  were  used  as  a  store  of  value, 
and  occasionally  as  a  medium  of  exchange.  The  several 
functions  of  money  were  thus  clearly  performed  by  differ- 
ent commodities  at  this  early  period. 

In  several  languages  the  name  for  money  is  identical 
with  that  of  some  kind  of  cattle  or  domesticated  animal. 
It  is  generally  allowed  that  pecunia,  the  Latin  word  for 
money,  is  derived  from  pecus,  cattle.  From  the  Agamem- 
non of  .ZEschylus  we  learn  that  the  figure  of  an  ox  was 
the  sign  first  impressed  upon  coins,  and  the  same  is  said 
to  have  been  the  case  with  the  earliest  issues  of  the 
Eoman  As.  Numismatic  researches  fail  to  bear  out 
these  traditions,  which  were  probably  invented  to  explain 
the  connection  between  the  name  of  the  coin  and  the 
animal.  A  corresponding  connection  between  these 
notions  may  be  detected  in  much  more  modern  languages. 
Our  common  expression  for  the  payment  of  a  sum  of 
money  is  fee,  which  is  nothing  but  the  Anglo-  Saxon /<%>/&, 
meaning  alike  money  and  cattle,  a  word  cognate  with  the 
German  vieh,  which  still  bears  only  the  original  meaning 
of  cattle.  As  I  am  informed  by  my  friend,  Professor 
Theodores,  the  same  connection  of  ideas  is  manifested 
in  the  Greek  word  for  property,  KT^O,  which  means  alike 
possession,  flock,  or  cattle,  and  is  referred  by  Grimm  to 
an  original  verb  ICETW  or  Karaw,  to  feed  cattle.  It  is 
even  supposed  by  Grimm  that  the  same  root  reappears 
in  the  Teutonic  and  Scandinavian  languages,  in  the 


EARLY    HISTORY   OF   MONEY.  23 

Gothic,  sJcatts,  the  modern  High  German,  schatz,  the 
Anglo-Saxon,  scat,  or  sceat,  the  ancient  Norsk  skat,  all 
meaning  wealth,  property,  treasure,  tax,  or  tribute, 
especially  in  the  shape  of  cattle.  This  theory  is  con- 
firmed by  the  fact  that  the  Frisian  equivalent,  sJcet, 
has  retained  the  original  meaning  of  cattle  to  the 
present  day.  In  the  Norsk,  Anglo-Saxon,  and  English, 
scat  or  scot  has  been  specialized  to  denote  tax  or  tribute. 
In  the  ancient  German  codes  of  law,  fines  and  penalties 
are  actually  defined  in  terms  of  live-stock.  In  the  Zend 
Avesta,  as  Professor  Theodores  further  informs  me,  the 
scale  of  rewards  to  be  paid  to  physicians  is  carefully 
stated,  and  in  every  case  the  fee  consists  in  some  sort  of 
cattle.  The  fifth  and  sixth  lectures  in  Sir  H.  S.  Maine's 
most  interesting  work  on  "  The  Early  History  of  Institu- 
tions," which  has  just  been  published,  are  full  of  curious 
information  showing  the  importance  of  live-stock  in  a 
primitive  state  of  society.  Being  counted  by  the  head,  the 
kine  was  called  capitale,  whence  the  economical  term 
capital)  the  law  term  chattel,  and  our  common  name 
cattle. 

In  countries  where  slaves  form  one  of  the  most 
common  and  valuable  possessions,  it  is  quite  natural 
that  they  should  serve  as  the  medium  of  exchange  like 
cattle.  Pausanias  mentions  their  use  in  this  way,  and 
in  Central  Africa  and  some  other  places  where  slavery 
still  flourishes,  they  are  the  medium  of  exchange  along 
with  cattle  and  ivory  tusks.  According  to  Earl's  account 
of  New  Guinea ,  there  is  in  that  island  a  large  traffic 
in  slaves,  and  a  slave  forms  the  unit  of  value.  Even 


24  MONEY. 

in  England  slaves  are  believed  to  have  been  exchanged 
at  one  time  in  the  manner  of  money. 

Articles  of  Ornament  as  Currency. 

A  passion  for  personal  adornment  is  one  of  the  most 
primitive  and  powerful  instincts  of  the  human  race,  and 
as  articles  used  for  such  purposes  would  be  durable,  uni- 
versally esteemed,  and  easily  transferable,  it  is  natural 
that  they  should  be  circulated  as  money.  The  wam- 
pumpeag  of  the  North  American  Indians  is  a  case  in 
point,  as  it  certainly  served  as  jewellery.  It  consisted 
of  beads  made  of  the  ends  of  black  and  white  shells, 
rubbed  down  and  polished,  and  then  strung  into  belts 
or  necklaces,  which  were  valued  according  to  their  length, 
and  also  according  to  their  colour  and  lustre,  a  foot  of 
black  peag  being  worth  two  feet  of  white  peag.  It  was  so 
well  established  as  currency  among  the  natives  that  the 
Court  of  Massachusetts  ordered,  in  1649,  that  it  should  be 
received  in  the  payment  of  debts  among  settlers  to  the 
amount  of  forty  shillings.  It  is  curious  to  learn,  too, 
that  just  as  European  misers  hoard  up  gold  and  silver 
coins,  the  richer  Indian  chiefs  secrete  piles  of  wampum 
beads,  having  no  better  means  of  investing  their  super- 
fluous wealth. 

Exactly  analogous  to  this  North  American  currency, 
is  that  of  the  cowry  shells,  which,  under  one  name  or 
another — chamgos,  zimbis,  bouges,  porcelanes,  etc. — have 
long  been  used  in  the  East  Indies  as  small  money.  In 
British  India,  Siam,  the  West  Coast  of  Africa,  and  else- 


EARLY    HISTOEY    OF    MONEY.  25 

where  on  the  tropical  coasts,  they  are  still  used  as  small 
change,  being  collected  on  the  shores  of  the  Maldive  and 
Laccadive  Islands,  and  exported  for  the  purpose.  Their 
value  varies  somewhat,  according  to  the  abundance  of  the 
yield,  but  in  India  the  current  rate  used  to  be  about  5000 
shells  for  one  rupee,  at  which  rate  each  shell  is  worth 
about  the  two-hundredth  part  of  a  penny.  Among  our 
interesting  fellow-subjects,  the  Fijians,  whale's  teeth 
served  in  the  place  of  cowries,  and  white  teeth  were 
exchanged  for  red  teeth  somewhat  in  the  ratio  of  shillings 
to  sovereigns. 

Among  other  articles  of  ornament  or  of  special  value 
used  as  currency,  may  be  mentioned  yellow  amber, 
engraved  stones,  such  as  the  Egyptian  scarabsei,  and 
tusks  of  ivory. 

Currency  in  the  Agricultural  State. 

Many  vegetable  productions  are  at  least  as  well  suited 
for  circulation  as  some  of  the  articles  which  have  been 
mentioned.  It  is  not  surprising  to  find,  then,  that 
among  a  people  supporting  themselves  by  agriculture, 
the  more  durable  products  were  thus  used.  Corn  has 
been  the  medium  of  exchange  in  remote  parts  of  Europe 
from  the  time  of  the  ancient  Greeks  to  the  present  day. 
In  Norway  corn  is  even  deposited  in  banks,  and  lent  and 
borrowed.  What  wheat,  barley,  and  oats  are  to  Europe, 
such  is  maize  in  parts  of  Central  America,  especially 
Mexico,  where  it  formerly  circulated.  In  many  of  the 
countries  surrounding  the  Mediterranean,  olive  oil  is  one 


26  MONEY. 

of  the  commonest  articles  of  produce  and  consumption ; 
being,  moreover,  pretty  uniform  in  quality,  durable,  and 
easily  divisible,  it  has  long  served  as  currency  in  the 
Ionian  Islands,  Mytilene,  some  towns  of  Asia  Minor,  and 
elsewhere  in  the  Levant. 

Just  as  cowries  circulate  in  the  East  Indies,  so  cacao 
nuts,  in  Central  America  and  Yucatan,  form  a  perfectly 
recognised  and  probably  an  ancient  fractional  money. 
Travellers  have  published  many  distinct  statements  as  to 
their  value,  but  it  is  impossible  to  reconcile  these  state- 
ments without  supposing  great  changes  of  value  either 
in  the  nuts  or  in  the  coins  with  which  they  are  com- 
pared. In  1521,  at  Caracas,  about  thirty  cacao  nuts 
were  worth  one  penny  English,  whereas  recently  ten 
beans  would  go  to  a  penny,  according  to  Squier's  state- 
ments. In  the  European  countries,  where  almonds  are 
commonly  grown,  .they  have  circulated  to  some  extent 
like  the  cacao  nuts,  but  are  variable  in  value,  according 
to  the  success  of  the  harvest. 

It  is  not  only,  however,  as  a  minor  currency  that  vege- 
table products  have  been  used  in  modern  times.  In  the 
American  settlements  and  the  West  India  Islands,  in 
former  days,  specie  used  to  become  inconveniently 
scarce,  and  the  legislators  fell  back  upon  the  device  of 
obliging  creditors  to  receive  payment  in  produce  at 
stated  rates.  In  1618,  the  Governor  of  the  Plantations 
of  Virginia  ordered  that  tobacco  should  be  received  at 
the  rate  of  three  shillings  for  the  pound  weight,  under 
the  penalty  of  three  years'  hard  labour.  We  are  told 
that,  when  the  Virginia  Company  imported  young 


EAKLY   HISTORY   OF   MONEY.  27 

women  as  wives  for  the  settlers,  the  price  per  head  was 
one  hundred  pounds  of  tobacco,  subsequently  raised  to 
one  hundred  and  fifty.  As  late  as  1732,  the  legislature 
of  Maryland  made  tobacco  and  Indian  corn  legal  tenders ; 
and  in  1641  there  were  similar  laws  concerning  corn  in 
Massachusetts.  The  governments  of  some  of  the  West 
India  Islands  seem  to  have  made  attempts  to  imitate 
these  peculiar  currency  laws,  and  it  was  provided  that 
the  successful  plaintiff  in  a  lawsuit  should  be  obliged  to 
accept  various  kinds  of  raw  produce,  such  as  sugar, 
rum,  molasses,  ginger,  indigo,  or  tobacco.*  Such  en- 
deavours to  establish  a  kind  of  multiple  currency  will  be 
found  to  possess  considerable  interest  for  us  in  a  later 
chapter. 

The  perishable  nature  of  most  kinds  of  animal  food 
prevents  them  from  being  much  used  as  money;  but 
eggs  are  said  to  have  circulated  in  the  Alpine  villages  of 
Switzerland,  and  dried  codfish  have  certainly  acted  as 
currency  in  the  colony  of  Newfoundland. 

Manufactured    and    Miscellaneous    Articles  as 
Currency. 

The  enumeration  of  articles  which  have  served  as 
money  may  already  seem  long  enough  for  the  purposes 
in  view.  I  will,  therefore,  only  add  briefly  that  a  great 
number  of  manufactured  commodities  have  been  used  as 
a  medium  of  exchange  in  various  times  and  places. 

*  See  a  scarce  tract,  entitled  "  Two  Letters  to  Mr.  Wood  on  the  Coin 
and  Currency  in  the  Leeward  Islands,"  p.  34.    London,  1740. 


28  MONEY. 

Such  are  the  pieces  of  cotton  cloth,  called  Guinea  pieces, 
used  for  traffic  upon  the  banks  of  the  Senegal,  or  the 
somewhat  similar  pieces  circulated  in  Abyssinia,  the 
Soulou  Archipelago,  Sumatra,  Mexico,  Peru,  Siberia, 
and  among  the  Veddahs.  It  is  less  easy  to  understand 
the  origin  of  the  curious  straw  money  which  circulated 
until  1694  in  the  Portuguese  possessions  in  Angola, 
and  which  consisted  of  small  mats,  called  libongos, 
woven  out  of  rice  straw,  and  worth  about  IJd.  each. 
These  mats  must  have  had,  at  least  originally,  some 
purpose  apart  from  their  use  as  currency,  and  were  per- 
haps analogous  to  the  fine  woven  mats  so  much  valued 
by  the  Samoans,  and  also  treated  by  them  as  a  medium 
of  exchange. 

Salt  has  been  circulated  not  only  in  Abyssinia,  but  in 
Sumatra,  Mexico,  and  elsewhere.  Cubes  of  benzoin 
gum  or  beeswax  in.  Sumatra,  red  feathers  in  the  Islands 
of  the  Pacific  Ocean,  cubes  of  tea  in  Tartary,  iron  shovels 
or  hoes  among  the  Malagasy,  are  other  peculiar  forms  of 
currency.  The  remarks  of  Adam  Smith  concerning  the 
use  of  hand-made  nails  as  money  in  some  Scotch 
villages  will  be  remembered  by  many  readers,  and  need 
not  be  repeated.  M.  Chevalier  has  adduced  an  exactly 
corresponding  case  from  one  of  the  French  coalfields. 

Were  space  available  it  would  be  interesting  to  discuss 
the  not  improbable  suggestion  of  Boucher  de  Perthes, 
that,  perhaps,  after  all,  the  finely  worked  stone  imple- 
ments now  so  frequently  discovered  were  among  the 
earliest  mediums  of  exchange.  Some  of  them  are  cer- 
tainly made  of  jade,  nephrite,  or  other  hard  stones,  only 


I 
EARLY   HISTORY   OF   MONEY.  29 

found  in  distant  countries,  so  that  an  active  traffic  in 
such  implements  must  have  existed  in  times  of  which  we 
have  no  records  whatever. 

There  are  some  obscure  allusions  in  classical  authors 
to  a  wooden  money  circulating  among  the  Byzantines, 
and  to  a  wooden  talent  used  at  Antioch  and  Alexandria, 
but  in  the  absence  of  fuller  information  as  to  their 
nature,  it  is  impossible  to  do  more  than  mention  them. 


UBRARTOF 

SMITH 


CHAPTEK  V. 

QUALITIES  OF  THE  MATEEIAL  OF  MONEY. 

MANY  recent  writers,  such  as  Huskisson,  MacCulloch, 
James  Mill,  Gamier,  Chevalier,  and  Walras,  have  satis- 
factorily described  the  qualities  which  should  be  possessed 
by  the  material  of  money.  Earlier  writers  seem,  how- 
ever, to  have  understood  the  subject  almost  as  well. 
Harris  explained  these  qualities  with  remarkable  clear- 
ness in  his  "  Essay  upon  Money  and  Coins,"  published 
in  1757,  a  work  which  appeared  before  the  "  Wealth  of 
Nations, "yet  gave  an  exposition  of  the  principles  of  money 
which  can  hardly  be  improved  at  the  present  day. 
Eighty  years  before,  however,  Eice  Vaughan,  in  his  ex- 
cellent little  "  Treatise  of  Money,"  had  written  a  brief 
but  satisfactory  statement  of  the  qualities  requisite  in 
money.  We  even  find  that  William  Stafford,  the  author 
of  that  remarkable  dialogue  of  the  Elizabethan  age 
(1581),  called  "  A  Brief  Conceipte  of  English  Policy," 
showed  perfect  insight  into  the  subject.  Of  all  writers, 
M.  Chevalier,  however,  probably  gives  the  most  accurate 
anct^foll  account  of  the  properties  which  money  should 
possess,  and  I  shall  in  many  points  follow  his  views. 


QUALITIES    OF    THE    MATERIAL    OF   MONEY.  81 

^he  prevailing  defect  in  the  treatment  of  the  subject 
is  the  failure  to  observe  that  money  requires  different 
properties  as  regards  different  functions.  To  decide  upon 
the  best  material  for  money  is  thus  a  problem  of  great 
complexity,  because  we  must  take  into  account  at  once 
the  relative  importance  of  the  several  functions  of  money, 
the  degree  in  which  money  is  employed  for  each  function, 
and  the  importance  of  each  of  the  physical  qualities  of 
the  substance  with  respect  to  each  function.  In  a  simple 
state  of  industry  money  is  chiefly  required  to  pass  about 
between  buyers  and  sellers.  It  should,  then,  be  con- 
veniently portable,  divisible  into  pieces  of  various  size, 
so  that  any  sum  may  readily  be  made  up,  and  easily 
distinguishable  by  its  appearance,  or  by  the  design  im- 
pressed upon  it.  When  money,  however,  comes  to  serve, 
as  it  will  at  some  future  time,  almost  exclusively  as  a 
measure  and  standard  of  value,  the  system  of  exchange, 
being  one  of  perfected  barter,  such  properties  become  a 
matter  of  comparative  indifference,  and  stability  of  value, 
joined  perhaps  to  portability,  is  the  most  important 
quality.  Before  venturing,  however,  to  discuss  such 
complex  questions,  we  must  proceed  to  a  preliminary 
discussion  of  the  properties  in  question,  which  may 
thus  perhaps  be  enumerated  in  the  order  of  their 
importance : — 

1.  Utility  and  value.  5.  Divisibility. 

2.  Portability.  6.  Stability  of  value. 

3.  Indestructibility.  7.  Cogniz ability. 

4.  Homogeneity. 


82  MONEY. 

1.   Utility  and  Value. 

Since  money  has  to  be  exchanged  for  valuable  goods, 
it  should  itself  possess  value,  and  it  must  therefore  have 
utility  as  the  basis  of  value.  Money,  when  once  in  full 
currency,  is  only  received  in  order  to  be  passed  on,  so 
that  if  all  people  could  be  induced  to  take  worthless  bits 
of  material  at  a  fixed  rate  of  valuation,  it  might  seem 
that  money  does  not  really  require  to  have  substantial 
value.  Something  like  this  does  frequently  happen  in 
the  history  of  currencies,  and  apparently  valueless  shells, 
bits  of  leather,  or  scraps  of  paper,  are  actually  received 
in  exchange  for  costly  commodities.  This  strange 
phenomenon  is,  however,  in  most  cases  capable  of  easy 
explanation,  and  if  we  were  acquainted  with  the  history 
of  every  kind  of  money  the  like  explanation  would  no 
doubt  be  possible  in  other  cases.  The  essential  point  is 
that  people  should  be  induced  to  receive  money,  and  pass 
it  on  freely  at  steady  ratios  of  exchange  for  other  objects; 
but  there  must  always  be  some  sufficient  reason  first 
inducing  people  to  accept  the  money.  The  force  of 
habit,  convention,  or  legal  enactment  may  do  much  to 
maintain  money  in  circulation  when  once  it  is  afloat, 
but  it  is  doubtful  whether  the  most  powerful  government 
could  oblige  its  subjects  to  accept  and  circulate  as  money 
a  worthless  substance  which  they  had  no  other  motive 
for  receiving. 

Certainly,  in  the  early  stages  of  society,  the  use  of 
money  was  not  based  on  legal  regulations,  so  that  the 
utility  of  the  substance  for  other  purposes  must  have 


QUALITIES    OF    THE    MATERIAL   OF    MONEY.  33 

been  the  prior  condition  of  its  employment  as  money. 
Thus  the  singular  peag  currency,  or  wampumpeag,  which 
was  found  in  circulation  among  the  North  American 
Indians  by  the  early  explorers,  was  esteemed  for  the 
purpose  of  adornment,  as  already  mentioned,  (p.  24). 
The  cowry  shells,  so  widely  used  as  a  small  currency  in 
the  East,  are  valued  for  ornamental  purposes  on  the  West 
Coast  of  Africa,  and  were  in  all  probability  employed  as 
ornaments  before  they  were  employed  as  money.  All 
the  other  articles  mentioned  in  Chapter  IV.,  such  as 
oxen,  corn,  skins,  tobacco,  salt,  cacao  nuts,  etc.,  which 
have  performed  the  functions  of  money  in  one  place  or 
other,  possessed  independent  utility  and  value.  If  there 
are  any  apparent  exceptions  at  all  to  this  rule,  they  would 
doubtless  admit  of  explanation  by  fuller  knowledge.  We 
may.  therefore,  agree  with  Storch  when  he  says  : — "  It 
is  impossible  that  a  substance  which  has  no  direct  value 
should  be  introduced  as  money,  however  suitable  it  may 
be  in  other  respects  for  this  use." 

When  once  a  substance  is  widely  employed  as  money, 
it  is  conceivable  that  its  utility  will  come  to  depend 
mainly  upon  the  services  which  it  thus  confers  upon  the 
community.  Gold,  for  instance,  is  far  more  important 
as  the  material  of  money  than  in  the  production  of  plate, 
jewellery,  watches,  gold-leaf,  etc.  A  substance  originally 
used  for  many  purposes  may  eventually  serve  only  as 
money,  and  yet,  by  the  demand  for  currency  and  the 
force  of  habit,  may  maintain  its  value.  The  cowry  cir- 
culation of  the  Indian  coasts  is  probably  a  case  in  point. 
The  importance  of  habit,  personal  or  hereditary,  is  at 


84:  MONEY. 

least  as  great  in  monetary  science  as  it  is,  according 
to  Mr.  Herbert  Spencer,  in  morals  and  sociological 
phenomena  generally. 

There  is,  however,  no  reason  to  suppose  that  the 
value,  of  gold  and  silver  is  at  present  due  solely  to  their 
conventional  use  as  money.  These  metals  are  endowed 
with  such  singularly  useful  properties  that,  if  we  could 
only  get  them  in  sufficient  abundance,  they  would  sup- 
plant all  the  other  metals  in  the  manufacture  of  house- 
hold utensils,  ornaments,  fittings  of  all  kinds,  and  an 
infinite  multitude  of  small  articles,  which  are  now  made 
of  brass,  copper,  bronze,  pewter,  German  silver,  or  other 
inferior  metals  and  alloys. 

In  order  that  money  may  perform  some  of  its 
functions  efficiently,  especially  those  of  a  medium  of  ex- 
change and  a  store  of  value,  to  be  carried  about,  it  is 
important  that  it  should  be  made  of  a  substance  valued 
highly  in  all  parts  of  the  world,  and,  if  possible,  almost 
equally  esteemed  by  all  peoples.  There  is  reason  to 
think  that  gold  and  silver  have  been  admired  and  valued 
by  all  tribes  which  have  been  lucky  enough  to  procure 
them.  The  beautiful  lustre  of  these  metals  must  have 
drawn  attention  and  excited  admiration  as  much  in  the 
earliest  as  in  the  present  times. 

2.  Portability. 

The  material  of  money  must  not  only  be  valuable,  but 
the  value  must  be  so  related  to  the  weight  and  bulk  of 
the  material,  that  the  money  shall  not  be  inconveniently 


QUALITIES  OF  THE  MATERIAL  OF  MONEY.       35 

heavy  on  the  one  hand,  nor  inconveniently  minute  on  the 
other.  There  was  a  tradition  in  Greece  that  Lycurgus 
obliged  the  Lacedaemonians  to  use  iron  money,  in  order 
that  its  weight  might  deter  them  from  overmuch  trading. 
However  this  may  be,  it  is  certain  that  iron  money  could 
not  be  used  in  cash  payments  at  the  present  day,  since 
a  penny  would  weigh  about  a  pound,  and  instead  of  a 
five-pound  note,  we  -should  have  to  deliver  a  ton  of 
iron.  During  the  last  century  copper  was  actually  used 
as  the  chief  medium  of  exchange  in  Sweden;  and 
merchants  had  to  take  a  wheelbarrow  with  them  when 
they  went  to  receive  payments  in  copper  dalers.  Many 
of  the  substances  used  as  currency  in  former  times  must 
have  been  sadly  wanting  in  portability.  Oxen  and 
sheep,  indeed,  would  transport  themselves  on  their  own 
legs;  but  corn,  skins,  oil,  nuts,  almonds,  etc.,  though 
in  several  respects  forming  fair  currency,  would  be 
intolerably  bulky,  and  troublesome  to  transfer. 

The  portability  of  money  is  an  important  quality 
not  merely  because  it  enables  the  owner  to  carry  small 
sums  in  the  pocket  without  trouble,  but  because  large 
sums  can  be  transferred  from  place  to  place,  or  from 
continent  to  continent,  at  little  cost.  The  result  is  to 
secure  an  approximate  uniformity  in  the  value  of  money 
in  all  parts  of  the  world.  A  substance  which  is  very 
heavy  and  bulky  in  proportion  to  value,  like  corn  or 
coal,  may  be  very  scarce  in  one  place  and  over  abundant 
in  another;  yet  the  supply  and  demand  cannot  be 
equalized  without  great  expense  in  carriage.  The  cost 
of  conveying  gold  or  silver  from  London  to  Paris, 


36  MONEY. 

including  insurance,  is  only  about  four-tenths  of  one 
per  cent. ;  and  between  the  most  distant  parts  of  the 
world  it  does  not  exceed  from  two  to  three  per  cent. 

Substances  may  be  too  valuable  as  well  as  too  cheap, 
so  that  for  ordinary  transactions  it  would  be  necessary 
to  call  in  the  aid  of  the  microscope  and  the  chemical 
balance.  Diamonds,  apart  from  other  objections,  would 
be  far  too  valuable  for  small  transactions.  The  value 
of  such  stones  is  said  to  vary  as  the  square  of  the 
weight,  so  that  we  cannot  institute  any  exact  comparison 
with  metals  of  which  the  value  is  simply  proportional 
to  the  weight.  But  taking  a  one-carat  diamond  (four 
grains)  as  worth  £15,  we  find  it  is,  weight  for  weight, 
460  times  as  valuable  as  gold.  There  are  several  rare 
metals,  such  as  iridium  and  osmium,  which  would  like- 
wise be  far  too  valuable  to  circulate.  Even  gold  and 
silver  are  too  costly  for  small  currency.  A  silver  penny 
now  weighs  7J  grains,  and  a  gold  penny  would  weigh 
only  half  a  grain.  The  pretty  octagonal  quarter-dollar 
tokens  circulated  in  California  are  the  smallest  gold 
coins  I  have  seen,  weighing  less  than  four  grains  each, 
and  are  so  thin  that  they  can  almost  be  blown  away. 

3.  Indestructibility. 

If  it  is  to  be  passed  about  in  trade,  and  kept  in 
reserve,  money  must  not  be  subject  to  easy  deteriora- 
tion or  loss.  It  must  not  evaporate  like  alcohol,  nor 
putrefy  like  animal  substances,  nor  decay  like  wood, 
nor  rust  like  iron.  Destructible  articles,  such  as  eggs, 


QUALITIES    OF    THE    MATERIAL    OF   MONEY.  37 

dried  codfish,  cattle,  or  oil,  have  certainly  been  used 
as  currency;  but  what  is  treated  as  money  one  day 
must  soon  afterwards  be  eaten  up.  Thus  a  large  stock 
of  such  perishable  commodities  cannot  be  kept  on  hand, 
and  their  value  must  be  very  variable.  The  several 
kinds  of  corn  are  less  subject  to  this  objection,  since, 
when  well  dried  at  first,  they  suffer  no  appreciable 
deterioration  for  several  years 

4.  Homogeneity. 

All  portions  or  specimens  of  the  substance  used  as 
money  should  be  homogeneous,  that  is,  of  the  same 
quality,  so  that  equal  weights  will  have  exactly  the 
same  value.  In  order  that  we  may  correctly  count  in 
terms  of  any  unit,  the  units  must  be  equal  and  similar, 
so  that  twice  two  will  always  make  four.  If  we  were 
to  count  in  precious  stones,  it  would  seldom  happen 
that  four  stones  would  be  just  twice  as  valuable  as 
two  stones.  Even  the  precious  metals,  as  found  in 
the  native  slats,  are  not  perfectly  homogeneous,  being- 
mixed  together  in  almost  all  proportions ;  but  this 
produces  little  inconvenience,  because  the  assayer  readily 
determines  the  quantity  of  each  pure  metal  present  in 
any  ingot.  In  the  processes  of  refining  and  coining, 
the  metals  are  afterwards  reduced  to  almost  exactly 
uniform  degrees  of  fineness,  so  that  equal  weights  are 
then  of  exactly  equal  value. 


38  MONEY. 

5.  Divisibility. 

Closely  connected  with  the  last  property  is  that  ol 
divisibility.  Every  material  is,  indeed,  mechanically 
divisible,  almost  without  limit.  The  hardest  gems  can 
be  broken,  and  steel  can  be  cut  by  harder  steel.  But 
the  material  of  money  should  be  not  merely  capable 
of  division,  but  the  aggregate  value  of  the  mass 
after  division  should  be  almost  exactly  the  same  as  before 
division.  If  we  cut  up  a  skin  or  fur  the  pieces  will, 
as  a  general  rule,  be  far  less  valuable  than  the  whole 
skin  or  fur,  except  for  a  special  intended  purp6se ;  and 
the  same  is  the  case  with  timber,  stone,  and  most  other 
materials  in  which  reunion  is  impossible.  But  portions 
of  metal  can  be  melted  together  again  whenever  it  is 
desirable,  and  the  cost  of  doing  this,  including  the  metal 
lost,  is  in  the  case  of  precious  metals  very  inconsiderable, 
varying  from  ^d.  to  %d.  per  ounce.  Thus,  approximately 
speaking,  the  value  of  any  piece  of  gold  or  silver  is 
simply  proportional  to  the  weight  of  fine  metal  which 
it  contains. 

6.  Stability  of  Value. 

It  is  evidently  desirable  that  the  currency  should  not 
be  subject  to  fluctuations  of  value.  The  ratios  in  which 
money  exchanges  for  other  commodities  should  be  main- 
tained as  nearly  as  possible  invariable  on  the  average. 
This  would  be  a  matter  of  comparatively  minor  import- 
ance were  money  used  only  as  a  measure  of  values  at 
any  one  moment,  and  as  a  medium  of  exchange.  If  alJ 


QfUALITIES    OF    THE    MATERIAL    OF    MONEY.  39 

prices  were  altered  in  like  proportion  as  soon  as  money 
varied  in  value,  no  one  would  lose  or  gain,  except  as 
regards  the  coin  which  he  happened  to  have  in  his  pocket, 
safe,  or  bank  balance.  But,  practically  speaking,  as  we 
have  seen,  people  do  employ  money  as  a  standard  of 
value  for  long  contracts,  and  they  often  maintain  pay- 
ments at  the  same  invariable  rate,  by  custom  or  law, 
even  when  the  real  value  of  the  payment  is  much 
altered.  Hence  every  change  in  the  value  of  money  does 
some  injury  to  society. 

It  might  be  plausibly  said,  indeed,  that  the  debtor 
gains  as  much  as  the  creditor  loses,  or  vice  versa,  so  that 
on  the  whole  the  community  is  as  rich  as  before ;  but 
this  is  not  really  true.  A  mathematical  analysis  of  the 
subject  shows  that  to  take  any  sum  of  money  from  one 
and  give  it  to  another  will,  on  the  average  of  cases, 
injure  the  loser  more  than  it  benefits  the  receiver.  A 
person  with  an  income  of  one  hundred  pounds  a  year 
would  suffer  more  by  losing  ten  pounds  than  he  would 
gain  by  an  addition  of  ten  pounds,  because  the  degree 
of  utility  of  money  to  him  is  considerably  higher 
at  ninety  pounds  than  it  is  at  one  hundred  and  ten. 
On  the  same  principle,  all  gaming,  betting,  pure 
speculation,  or  other  accidental  modes  of  transferring 
property  involve,  on  the  average,  a  dead  loss  of  utility. 
The  whole  incitement  to  industry  and  commerce  and  the 
accumulation  of  capital  depends  upon  the  expectation  of 
enjoyment  thence  arising,  and  every  variation  of  the 
currency  tends  in  some  degree  to  frustrate  such  expect- 
ation and  to  lessen  the  motives  for  exertion. 


40  MONEY. 

7.  Cognizability. 

By  this  name  we  may  denote  the  capability  of  a  sub- 
stance for  being  easily  recognized  and  distinguished 
from  all  other  substances.  As  a  medium  of  exchange, 
money  has  to  be  continually  handed  about,  and  it  will 
occasion  great  trouble  if  every  person  receiving  currency 
has  to  scrutinize,  weigh,  and  test  it.  If  it  requires  any 
skill  to  discriminate  good  money  from  bad,  poor  ignorant 
people  are  sure  to  be  imposed  upon.  Hence  the  medium 
of  exchange  should  have  certain  distinct  marks  which 
nobody  can  mistake.  Precious  stones,  even  if  in  other 
respects  good  as  money,  could  not  be  so  used,  because 
only  a  skilled  lapidary  can  surely  distinguish  between 
true  and  imitation  gems. 

Under  cogniz ability  we  may  properly  include  what 
has  been  aptly  called  impressibility,  namely,  the  capa- 
bility of  a  substance  to  receive  such  an  impression,  seal, 
or  design,  as  shall  establish  its  character  as  current 
money  of  certain  value.  We  might  more  simply  say, 
that  the  material  of  money  should  be  coinable,  so  that 
a  portion,  being  once  issued  according  to  proper  regu- 
lations with  the  impress  of  the  state,  may  be  known  to 
all  as  good  and  legal  currency,  equal  in  weight,  size, 
and  value  to  all  similarly  marked  currency.  We  shall 
afterwards  consider  more  minutely  what  is  involved  in 
the  manufacture  of  a  good  coin. 


CHAPTEE  VI. 

THE  METALS  AS  MONEY. 

IT  need  not  be  pointed  out  in  detail  that,  though  the 
numerous  commodities  mentioned  in  Chapter  IV.  pos- 
sess, in  a  greater  or  less  degree,  the  qualities  essential 
to  the  material  of  money,  they  cannot  for  a  moment 
compare  in  this  respect  with  many  of  the  metals.  Some 
of  the  metals  seem  to  be  marked  out  by  nature  as  most 
fit  of  all  substances  for  employment  as  money,  at  least 
when  acting  as  a  medium  of  exchange  and  a  store  of 
value.  Accordingly,  we  find  that  gold,  silver,  copper, 
tin,  lead,  and  iron  have  been  more  or  less  extensively  in 
circulation  in  all  historical  ages.  So  closely  have  silver 
and  copper  become  associated  in  people's  minds  with 
their  use  as  money,  that  we  find  their  names  adopted  as 
the  names  of  money.  In  Greek,  apyvpoe  means  equally 
silver,  silver  coin,  and  money  generally ;  in  Latin,  aes  is 
copper,  bronze,  or  brass,  and  also  money  and  wages ;  in 
French,  argent  is  both  silver  and  money.  The  same 
association  of  meanings  could  be  pointed  out  in  many 
other  languages,  including  our  own.  Though  our  pence 
are  now  made  of  bronze,  we  still  speak  of  them  as 
coppers. 


42  MONET. 

With  the  exception  of  iron,  the  principal  metals  are 
peculiarly  indestructible,  and  undergo  little  or  no  dete- 
rioration when  hoarded  up  or  handed  ahout.  Each 
kind  of  metal  is  approximately  homogeneous,  piece 
differing  from  piece  in  nothing  but  weight,  the  differences 
of  fineness  being  ascertained  and  allowed  for  in  the  case 
of  gold  and  silver,,  The  metals  are  also  perfectly  divi- 
sible, either  by  the  chisel  or  the  crucible,  and  yet  a 
second  melting  will  always  reunite  the  pieces  again  with 
little  cost  or  loss  of  material.  Most  of  them  possess  the 
properties  of  cognizability  and  impressibility  in  the 
highest  degree.  Each  metal  has  its  characteristic 
colour,  density,  and  hardness,  so  that  it  is  easy  for  a 
person  with  very  slight  experience  to  distinguish  one 
metal  from  another.  Their  malleability  enables  us  to 
roll,  cut,  and  hammer  them  into  any  required  form,  and 
to  impress  a  permanent  design  by  means  of  dies.  With 
the  exception  of  porcelain  coins,  which  have  been  used 
in  Siam,  I  am  not  aware  that  coins  have  ever  been  made 
of  any  substance  except  metal. 

In  respect  to  steadiness  of  value  the  metals  are  prob- 
ably less  satisfactory,  regarded  as  a  standard  of  value, 
than  many  other  commodities,  such  as  corn.  From  the 
earliest  ages  metals  must  have  been  most  highly  valued, 
as  we  may  learn  from  the  way  in  which  they  are 
esteemed  by  savages  in  the  present  day.  But  their 
value  has  suffered  and  is  suffering  an  almost  continuous 
decline,  owing,to  the  progress  of  industry,  and  the  dis- 
covery of  new  mechanical  and  chemical  means  for  their 
extraction.  Even  the  order  of  their  values  becomes 


THE    METALS   AS    MONEY.  48 

changed.  According  to  Mr.  Gladstone,  iron  was,  in  the 
Homeric  age,  much  more  valued  than  chalkos,  or  copper, 
which  latter  was  then  the  most  common  and  useful 
metal.  Lead  was  little  known  or  valued,  but  gold, 
silver,  and  tin  held  the  same  places  at  the  head  of  the 
list  which  they  hold  at  the  present  day. 

Iron. 

Proceeding  to  consider  briefly  each  of  the  more  im- 
portant metals,  the  statements  of  Aristotle,  Pollux,  and 
other  writers  prove  that  iron  was  extensively  employed 
as  money  in  early  times.  Not  a  single  specimen  of  such 
money  is  now  known  to  exist,  but  this  is  easily  accounted 
for  by  the  rapidity  with  which  the  metal  rusts.  In  the 
absence  of  specimens,  we  do  not  know  the  form  and 
size  of  the  money,  but  it  is  probable  that  it  consisted  of 
small  bars,  ingots,  or  spikes,  somewhat  similar  to  the 
small  bars  of  iron  which  are  still  used  in  trading  with 
the  natives  of  Central  Africa.  Iron  money  is  still,  or 
was  not  long  since,  used  in  Japan  for  small  values;  but 
its  issue  from  the  mint  has  been  discontinued. 

The  use  of  pure  iron  coins  in  civilized  countries  at  the 
present  day  is  out  of  the  question,  both  because  of  the 
cheapness  of  the  metal,  and  because  the  coins  would 
soon  lose  the  sharpness  of  their  impressions  by  rusting, 
and  become  dirty  and  easily  counterfeited.  But  it  is 
quite  possible  that  iron  or  steel  might  still  be  alloyed 
with  other  metals  for  the  coining  of  pence. 


44  MONEY. 

Lead. 

Lead  has  often  been  used  as  currency,  and  is  occasion- 
ally so  mentioned  by  the  ancient  Greek  and  Latin  poets. 
In  1635  leaden  bullets  were  used  for  change  at  the  rate 
of  a  farthing  a  piece  in  Massachusetts.  At  the  present 
day  it  is  still  .current  in  Burmah,  being  passed  by  weight 
for  small  payments.  The  extreme  softness  of  the  metal 
obviously  renders  it  quite  unfit  for  coining  in  the  pure 
state.  It  is  one  of  the  components  of  pewter,  which 
has  frequently  been  coined. 

Tin. 

Tin  has  also  been  employed  as  money  at  various  times. 
Dionysius  of  Syracuse  issued  the  earliest  tin  coinage  of 
which  anything  is  certainly  known ;  but  as  tin  was  in 
early  times  procured  from  Cornwall,  it  can  hardly  be 
doubted  that  the  first  British  currency  was  composed  of 
tin.  In  innumerable  cabinets  may  be  found  series  of  tin 
coins  issued  by  the  Roman  emperors;  the  kings  of 
England  also  often  coined  tin.  In  1680  tin  farthings 
were  struck  by  Charles  II.,  a  stud  of  copper  being  in- 
serted in  the  middle  of  the  coin  to  render  counterfeiting 
more  difficult.  Tin  halfpence  and  farthings  were  also 
issued  in  considerable  quantities  in  the  reign  of  William 
and  Mary  (1690  to  1691).  Tin  coins  were  formerly  em- 
ployed among  the  Javanese,  Mexicans,  and  many  other 
peoples,  and  the  metal  is  said  to  be  still  current  b} 
weight  in  the  Straits  of  Malacca. 


THE    METALS    AS    MONEY.  45 

Tin  would  be  in  many  respects  admirably  suited  for 
making  pence,  possessing  a  fine  white  colour,  perfect 
freedom  from  corrosion,  and  a  much  higher  value  than 
copper.  Unfortunately,  its  softness  and  tendency  to 
bend  and  break  when  pure  are  insuperable  obstacles 
to  its  employment  as  money. 

Copper. 

This  metal  is  in  many  respects  well  suited  for  coming. 
It  does  not  suffer  from  exposure  to  dry  air,  possesses  a 
fine  distinct  red  colour,  and  takes  a  good  impression  from 
the  dies,  which  impression  it  retains  better  than  the 
majority  of  other  metals.  Accordingly,  we  find  that  it 
has  been  continually  employed  as  currency,  either  alone 
or  in  subordination  to  gold  and  silver.  The  earliest 
Hebrew  coins  were  composed  chiefly  of  copper,  and  the 
metallic  currency  of  Borne  consisted  of  the  impure 
copper,  called  aes,  until  B.C.  269,  when  silver  was  first 
coined.  In  later  times  copper  has  not  only  been  generally 
used  for  coins  of  minor  value,  but,  in  Eussia  and  in 
Sweden,  a  hundred  years  ago,  it  formed  the  principal 
mass  of  the  currency.  Its  low  value  now  stands  in  the 
way  of  its  use.  A  penny,  if  made  so  as  to  contain  metal 
equivalent  to  its  nominal  value,  would  weigh  870  grains, 
or  more  than  an  ounce  and  three-quarters  troy.  Its 
value  is  also  subject  to  considerable  fluctuations. 
Moreover,  it  is  unlikely  that  copper  in  a  pure  state  v- 
will  be  coined  for  the  future,  since  bronze  is  now  known 
to  be  so  much  mo"re  suitable  for  coinage. 


46  MONEY. 

Silver. 

I  need  hardly  say  that  silver  is  distinguished  by  its 
exquisite  white  lustre,  which  is  not  rivalled  hy  that  of  any 
other  pure  metal.  Certain  alloys,  indeed,  such  as 
speculum  metal,  or  Britannia  metal,  have  been  made 
of  almost  equal  lustre,  but  they  are  either  brittle,  or 
so  soft  as  not  to  give  the  metallic  ring  of  silver.  When 
much  exposed  to  the  air  silver  tarnishes  by  the  formation 
of  a  black  film  of  silver  sulphide ;  but  this  forms  no 
obstacle  to  its  use  as  currency,  since  the  film  is  always 
very  thin,  and  its  peculiar  black  colour  even  assists  in 
distinguishing  the  pure  metal  from  counterfeit.  When 
suitably  alloyed,  silver  is  sufficiently  hard  to  stand  much 
wear,  and  next  after  gold  it  is  the  most  malleable  and 
impressible  of  all  the  metals. 

A  coin  or  other  object  made  of  silver  may  be  known 
by  the  following  marks : — (1)  a  fine  pure  white  lustre, 
where  newly  rubbed  or  scraped ;  (2)  a  blackish  tint  where 
the  surface  has  long  been  exposed  to  the  air;  (3)  a 
moderate  specific  gravity ;  (4)  a  good  metallic  ring  when 
thrown  down ;  (5)  considerable  hardness ;  (6)  strong 
nitric  acid  dissolves  silver,  and  the  solution  turns  black 
if  exposed  to  light. 

Silver  has  been  coined,  it  need  hardly  be  said,  in  all 
ages  since  the  first  invention  of  the  art,  and  its  value 
relatively  to  gold  and  copper  suits  it  for  taking  the  middle 
place  in  a  monetary  system.  Its  value  too  remains  very 
stable  for  periods  of  fifty  or  a  hundred  years,  because  avast 
stock  of  the  metal  is  kept  in  the  form  of  plate,  watches, 


THE    METALS   AS    MONEY.  47 

jewellery,  and  ornaments  of  various  kinds,  in  addition  to 
money,  so  that  a  variation  in  the  supply  for  a  few  years 
cannot  make  any  appreciable  change  in  the  total  stock. 
Productive  silver  mines  exist  in  almost  all  parts  of  the 
world,  and  wherever  lead  i»  produced,  a  small  but 
steady  yield  of  silver  is  obtained  from  it  by  the  Pattin- 
son  method  of  extraction. 

Gold. 

Silver  is  beautiful,  yet  gold  is  even  more  beautiful, 
and  presents  indeed  a  combination  of  useful  and  striking 
properties  quite  without  parallel  among  known  substances. 
To  a  rich  and  brilliant  yellow  colour,  which  can  only  be 
adequately  described  as  golden,  it  joins  astonishing  mal- 
leability and  a  very  high  specific  gravity,  exceeded  only 
by  that  of  platinum  and  a  few  of  the  rarest  or  almost 
unknown  metals.  We  can  usually  ascertain  whether  a 
coin  consists  of  gold  or  not,  by  looking  for  three  charac- 
teristic marks :  (1)  the  brilliant  yellow  colour ;  (2)  the 
high  specific  gravity ;  (3)  the  metallic  ring  of  the  coin 
when  thrown  down,  which  will  prove  the  absence  of  lead 
or  platinum  in  the  interior  of  the  coin. 

If  there  remain  any  doubt  about  a  metal  being  gold, 
we  have  only  to  appeal  to  its  solubility.  Gold  is  remark- 
able for  its  freedom  from  corrosion  or  solution,  being 
quite  unaffected  and  untarnished  after  exposure  of  any 
length  of  time  to  dry,  or  moist,  or  impure  air,  and  being 
also  insoluble  in  all  the  simple  acids.  Strong  nitric 
acid  will  rapidly  attack  any  coloured  counterfeit  metal, 


48  MONEY. 

but  will  not  touch  standard  gold,  or  will,  at  the  most, 
feebly  dissolve  the  copper  and  silver  alloyed  with  it. 

In  almost  all  respects  gold  is  perfectly  suited  for 
coining.  When  quite  pure,  indeed,  it  is  almost  as  soft 
as  tin,  but  when  alloyed  with  one-tenth  or  one-twelfth 
part  of  copper,  becomes  sufficiently  hard  to  resist  wear 
and  tear,  and  to  give  a  good  metallic  ring ;  yet  it  remains 
perfectly  malleable  and  takes  a  fine  impression.  Its 
melting  point  is  moderately  high,  and  yet  there  is  no 
perceptible  oxidization  or  volatilization  of  the  metal  at 
the  highest  temperature  which  can  be  produced  in  a- 
furnace.  Thus  old  coin  and  fragments  of  the  metal 
can  be  melted  into  bullion  at  a  very  slight  loss,  and  at  a 
cost  of  not  more  than  one  halfpenny  per  ounce  troy,  or 
little  more  than  one-twentieth  of  one  per  cent. 

Platinum. 

This  is  one  of  those  comparatively  rare  metals  which 
have  been  known  only  in  recent  times.  Its  extremely 
high  melting-point,  and  low  affinity  for  oxygen,  render  it 
one  of  the  most  indestructible  of  all  substances,  whilst  its 
white  colour,  joined  to  its  excessively  high  specific  gravity, 
are  marks  which  cannot  be  mistaken.  As  it  seemed  in 
these  respects  well  suited  for  currency,  the  Russian 
government,  which  owns  the  principal  platinum  mines  in 
the  Ural  mountains,  commenced  to  coin  it,  in  1828,  into 
pieces  intended  to  have  the  values  of  twelve,  six,  and  three 
roubles.  Several  objections  to  this  use  of  the  metal  soon 
presented  themselves.  The  appearance  of  platinum 


THE    METALS   AS    MONEY.  49 

being  inferior  to  that  of  silver  or  gold,  it  is  seldom 
or  never  employed  for  purposes  of  ornament,  and  its  only 
extensive  use  is  in  the  construction  of  chemical  apparatus. 
Hence  there  is  no  large  stock  of  the  metal  kept  on  hand, 
and  the  localities  where  it  is  found  being  few,  the  supply 
is  incapable  of  being  much  increased,  so  that  any  varia- 
tion of  demand  is  sure  to  cause  a  great  change  in  its 
value.  Moreover,  the  cost  of  making  the  coins  was  very 
great,  owing  to  the  extreme  difficulty  of  melting  pla- 
tinum, and  the  worn  coins  could  not  be  withdrawn  and 
recoined  without  much  additional  cost.  Platinum  being 
thus  found  to  be  quite  unfitted  for  currency,  the  scheme 
was  abandoned  in  1845,  and  the  existing  coins  withdrawn 
from  circulation. 

Great  improvements  having  been  lately  made  in  the 
modes  of  working  platinum,  it  was  proposed  by  M.  do 
Jacobi,  the  representative  of  Kussia  at  the  International 
Monetary  Conference  held  at  Paris,  in  1867,  that 
platinum  should  be  employed  for  the  coinage  of  five- 
franc  pieces.  It  is  not  likely  that  such  a  suggestion 
will  be  adopted. 

NicJceL 

This  metal  was  formerly  regarded  as  the  bane  of  the 
metallurgist,  but  has  recently  assumed  an  important 
place  in  manufacturing  industry,  and  even  in  monetary 
science.  It  is  used  only  in  alloy  with  other  metals,  and 
for  the  purposes  of  coinage  it  is  usual  to  melt  up  one 
part  of  nickel  with  three  of  copper.  Some  of  the  coins 
of  Belgium,  and  the  one-cent  pieces  of  the  United  States 


60  MONEY. 

have  been  made  of  this  material  and  seem  to  be  very 
convenient.  In  1869  and  1870-1,  pence  and  halfpence, 
to  the  value  of  £3000,  were  executed  in  the  same 
alloy,  at  the  English  mint,  for  the  colony  of  Jamaica. 
These  are  some  of  the  most  beautiful  coins  which  have 
ever  been  issued  from  Tower  Hill,  and  are  in  most 
respects  admirably  suited  for  circulation.  But  they  were 
unfortunately  made  much  too  large  and  heavy ;  not 
only  were  they  thus  rendered  less  convenient,  but  when 
in  1873,  the  Deputy  Master  of  the  Mint  was  requested  to 
supply  a  further  quantity  of  the  same  coins,  he  found 
that  the  price  of  nickel  had  risen  very  much,  so  that  the 
materials  for  the  coinage  alone  would  cost  more  than 
the  nominal  value  of  the  coins  to  be  produced.  This 
rise  in  price  was  due  partly  to  the  small  number  of 
nickel  mines  yet  worked,  and  partly  to  the  great  demand 
for  the  metal  occasioned  by  the  German  government, 
which  has  chosen  the  same  alloy  for  the  ten  and  five- 
pfennig  pieces  of  its  new  monetary  system.  These  coins, 
which  are  now  being  issued,  are  of  a  convenient  size, 
rather  less  than  a  shilling  and  sixpence  respectively,  and 
appear  to  be  in  every  way  admirably  suited  to  their 
purpose.  The  German  empire  will  soon  possess  the 
best  instead  of  the  worst  fractional  currency  in  the 
world.  The  variableness  in  the  price  of  nickel,  which  is 
at  present  a  cause  of  embarrassment,  may  after  a  time 
become  less  serious,  when  the  stock  in  use  and  the 
annual  produce  become  larger. 


THE    METALS   AS    MONEY.  61 

Other  Metals. 

The  metals  yet  mentioned  are  but  a  small  number  of 
those  now  known  by  chemists  to  exist,  and  it  would  be 
unwise  to  assume  as  certain  that  money  must  always  be 
made  in  the  future  of  the  same  materials  as  in  the  past. 
It  is  just  conceivable,  on  the  one  hand,  that  in  the  course 
of  time,  some  metal  still  more  valuable  than  gold  may  be 
introduced.  Roughly  speaking,  the  order  in  which  the 
metals  have  hitherto  acted,  as  the  principal  medium  ot 
exchange,  is  (1)  copper,  (2)  silver,  (3)  gold ;  as  a  general 
decline  in,  the  values  of  the  metals  took  place,  the 
more  valuable  replaced  the  less  valuable,  and  the  more 
portable  gold  is  now  rapidly  taking  the  place  of  silver. 
Some  still  more  valuable  metal,  such  as  the  scarce  and 
intractable  iridium  or  osmium,  or  the  remarkable  metal 
palladium,  might  possibly  take  the  place  of  gold.  This, 
however,  is  barely  more  than  a  matter  of  scientific  fancy. 

On  the  other  hand,  many  metals  exist  which  might 
be  produced  more  cheaply  than  silver,  such  as  aluminium 
or  manganese.  It  may  be  well  worthy  of  inquiry 
whether  in  such  metals  may  not  be  found  the  best  solu- 
tion of  the  fractional  currency  difficulty,  to  be  afterwards 
more  fully  discussed  (p.  132). 

Alloys  of  Metals. 

At  one  time  or  another  an  immense  number  of 
different  alloys  or  mixtures  of  metals  have  been  coined, 
It  would  be  strictly  correct  to  say,  indeed,  that  metals 


52  MONEY. 

have  seldom  been  issued  except  in  the  state  of  alloy. 
Even  gold  and  silver,  as  usually  coined,  are  either 
alloyed  with  each  other  or  with  copper.  The  latter 
metal,  too,  has  generally  been  employed  in  union  with 
other  metals.  The  Roman  as  consisted,  not  of  pure 
copper,  but  of  the  mixed  metal  aes,  an  alloy  of  copper 
and  tin,  partially  resembling  the  bronze  which  has  quite 
recently  been  introduced  for  small  money  in  France, 
England,  and  other  countries.  Brass  was  largely  coined 
by  some  of  the  Koman  emperors.  In  many  cases,  no 
doubt,  the  early  metallurgists  in  smelting  an  ore  obtained 
a  natural  alloy  of  all  the  metals  contained  therein,  and 
being  unable  to  separate  them  were  obliged  to  use 
the  mixture.  Thus  we  may  explain  the  curious  metal 
containing  from  sixty  to  seventy  parts  of  copper,  twenty 
to  twenty-five  of  zinc,  five  to  eleven  of  silver,  with  small 
quantities  of  gold,  lead,  and  tin,  which  was  employed  to 
make  the  stycas,  or  small  money,  of  the  early  kings  of 
Northumbria. 

Monarchs  or  states  in  difficulty  have  often  coined  the 
metal  which  they  could  most  easily  obtain.  The  Irish 
money  issued  by  James  II.  was  said  to  have  been  coined 
from  a  mixture  of  old  guns,  broken  bells,  waste  copper, 
brass,  and  pewter,  old  kitchen  furniture,  and  in  fact  any 
refuse  metal  which  his  officers  could  lay  their  hands 
upon.  He  attempted  to  make  pewter  crowns  circulate 
for  the  value  of  silver  ones. 


CHAPTEE  VIL 

COINS. 

IT  is  clear  that  the  metals  far  surpass  all  other  sub- 
stances in  suitability  for  the  purpose  of  circulation,  and 
it  is  almost  equally  clear  that  certain  metals  surpass  all 
the  other  metals  in  this  respect.  Of  gold  and  silver 
especially  we  may  say,  with  Turgot,  that,  by  the  nature 
of  things,  they  are  constituted  the  universal  money  inde- 
pendently of  all  convention  and  law.  Even  if  the  art  of 
coining  had  never  been  invented,  gold  and  silver  would 
probably  have  formed  the  currency  of  the  world ;  but  we 
have  now  to  consider  how,  by  shaping  weighed  pieces 
of  these  metals  into  coins,  we  can  make  use  of  their 
valuable  properties  to  the  greatest  advantage. 

The  primitive  mode  of  circulating  the  metals,  indeed, 
was  simply  that  of  buying  and  selling  them  against 
other  commodities,  the  weights  or  portions  being  rudely 
estimated.  Some  of  the  earliest  specimens  of  money 
consist  of  the  aes  rude,  or  rough,  shapeless  lumps  of 
native  copper  employed  as  money  by  the  ancient 
Etruscans.  In  the  Museum  of  the  Archiginnasio  at 
Bologna  may  be  seen  the  skeleton  of  an  Etruscan,  half 


54  MONEY. 

embedded  in  earth,  with  the  piece  of  rough  copper 
yet  within  the  grasp  of  the  bony  hand,  placed  there 
to  meet  the  demands  of  Charon.  Pliny,  moreover,  tells 
us  that,  before  the  time  of  Servius  Tullius,  copper  was 
circulated  in  the  rude  state.  Afterwards  copper,  brass, 
or  iron  were,  it  is  probable,  employed  in  the  form 
of  small  bars  or  spikes,  and  the  name  of  the  Greek  unit 
of  value,  drachma,  is  supposed  to  have  been  derived 
from  the  fact  that  six  of  these  metal  spikes  could  be 
grasped  in  the  hand,  each  piece  being  called  an  obolus. 
Such  is  supposed  to  have  been  the  first  system  of  money 
which  was  passed  purely  by  tale,  or  number  of  pieces. 

Gold  is  most  readily  obtained  from  alluvial  deposits, 
and  then  has  the  form  of  grains  or  dust.  Hence  this 
is  the  primitive  form  of  gold  money.  The  ancient 
Peruvians  enclosed  the  gold  dust  for  the  sake  of  security 
in  quills,  and  thus  passed  it  about  more  conveniently. 
At  the  gold  diggings  of  California,  Australia,  or  New 
Zealand,  gold  dust  is  to  the  present  day  sold  directly 
against  other  goods  by  the  aid  of  scales.  The  art  of 
melting  gold  and  silver,  and  fashioning  them  by  the 
hammer  into  various  shapes  was  early  invented.  Even 
in  the  present  day  the  poor  Hindoo,  who  has  saved  up 
a  few  rupees,  employs  a  silversmith  to  melt  them  up 
and  beat  them  into  a  simple  bracelet,  which  he  wears 
in  the  double  character  of  an  ornament  and  a  hoard  of 
wealth. 

Similarly,  the  ancient  Goths  and  Celts  were  accus- 
tomed to  fashion  gold  into  thick  wires,  which  they  rolled 
up  into  spiral  rings  and  probably  wore  upon  their  fingers 


COINS.  55 

until  the  metal  was  wanted  for  trading  purposes.  There 
can  be  little  doubt  that  this  ring  money,  of  which 
abundant  specimens  have  been  found  in  various  parts 
of  Europe  and  Asia,  formed  the  first  approximation  to 
a  coinage.  In  some  cases  the  rings  may  have  been 
intentionally  made  of  equal  weight;  for  Caesar  speaks 
of  the  Britons  as  having  iron  rings,  adjusted  to  a  certain 
weight,  to  serve  as  money.  In  other  cases  the  rings,  or 
amulets,  were  bought  and  sold  by  aid  of  the  balance; 
and  in  certain  Egyptian  paintings  men  are  represented 
as  in  the  act  of  weighing  rings.  It  is  probable  that 
the  necessity  for  frequent  weighings  was  avoided  by 
mating  up  sealed  bags  containing  a  certain  weight  of 
rings,  and  such  perhaps  are  the  bags  of  silver  given  by 
Naaman  to  Gehazi  in  the  Second  Book  of  Kings  (v.  23). 
Eing  money  is  said  to  be  still  current  in  Nubia. 

Gold  and  silver  have  been  fashioned  into  various  other 
forms  to  serve  as  money.  Thus  the  Siamese  money 
consists  of  very  small  ingots  or  bars  bent  double  in  a 
peculiar  manner.  In  Pondicherry  and  elsewhere  gold  is 
circulated  in  the  form  of  small  grains  or  buttons. 

The  Invention  of  Coining. 

The  date  of  the  invention  of  coining  can  be  as- 
signed with  some  degree  of  probability.  Coined  money 
was  clearly  unknown  in  the  Homeric  times,  and  it  was 
known  in  the  time  of  Lycurgus.  We  might  therefore 
assume,  with  various  authorities,  that  it  was  invented  in 
the  mean  time,  or  about  900  B.C.  There  is  a  tradition, 
4 


56 


MONEY. 


moreover,  that  Pheidon,  King  of  Argos,  first  struck  silver 
money  in  the  island  of  ^Egina  about  895  B.C.,  and  the 
tradition  is  supported  by  the  existence  of  small  stamped 
ingots  of  silver,  which  have  been  found  in  JEgina.  Later 
inquiries,  however,  lead  to  the  conclusion  that  Pheidon 
lived  in  the  middle  of  the  eighth  century  B.C.,  and  Grote 
has  shown  good  reasons  for  believing  that  what  he  did 
accomplish  was  done  in  Argos,  and  not  in  JEgina. 

The  mode  in  which  the  invention  happened  is  suffi- 
ciently evident.     Seals  were  familiarly  employed  in  very 
early  times,  as  we  learn  from  the  Egyptian  paintings  or 
the   stamped  bricks   of    Nineveh.     Being  employed  to 
signify  possession,  or  to  ratify  contracts,  they  came  to 
indicate   authority.     When   a  ruler  first  undertook  to 
certify  the  weights  of  pieces  of  metal,  he  naturally  em- 
ployed his   seal  to  make  the  fact  known,  just   as,  at 
Goldsmiths'  Hall,  a  small  punch  is  used  to  certify  the 
fineness  of  plate.     In  the  earliest  forms  of  coinage  there 
were  no  attempts  at   so  fashioning  the  metal  that  its 
weight   could   not   be   altered   without   destroying    the 
stamp   or   design.     The  earliest   coins  struck,  both  in 
Lydia  and  in  the  Peloponnesus,  were  stamped  on  one 
side  only.     The  Persian  money,  called  the  larin,  consists 
of  a  round  silver  wire,  about  six  centimetres  long,  bent 
in  two,  and  stamped  on  one  part  which  is  flattened  for 
the  purpose.      It  is  probably  a  relic   of  ring   money. 
The  present  circulation  of  China  is  composed  to  a  con- 
siderable extent  of  the  so-called  Sycee  silver,  which  con- 
sists of  small  shoe-shaped  ingots,  assayed  and  stamped, 
according  to  some  accounts,  by  the  government. 


COINS.  57 

What  is  a  Coin  ? 

Although,  in  rings,  grains,  or  stamped  ingots,  we  have 
an  approximation  to  what  we  call  coin,  it  is  plain  that 
we  must  do  something  more  to  make  convenient  money. 
The  stamp  must  be  so  impressed  as  to  certify,  not  only 
the  fineness  and  the  original  weight,  but  also  the 
absence  of  any  subsequent  alteration.  To  coin  metal, 
as  we  now  understand  the  art,  is  to  form  it  into  flat  pieces 
of  a  circular,  oval,  square,  hexagonal,  octagonal,  or  other 
regular  outline,  and  then  to  impress  designs  from  en- 
graved dies  upon  both  sides,  and  sometimes  upon  the 
edges.  Not  only  is  it  very  costly  and  difficult  to  counter- 
feit coins  well  executed  in  this  manner,  but  the  integrity 
of  the  design  assures  us  that  no  owner  of  the  coin 
has  tampered  with  it.  Even  the  amount  of  ordinary 
wear  and  tear,  which  the  coin  has  suffered,  may  be  rudely 
inferred  from  the  sharpness  or  partial  effacement  of  the 
designs,  and  the  roundness  of  the  edges.  "  Pieces  of 
money,"  says  M.  Chevalier,  "are  ingots  of  which  the 
weight  and  the  fineness  are  certified."  There  is  nothing 
in  this  definition  to  distinguish  coins  from  Sycee  silver, 
or  from  the  ordinary  stamped  bars  and  ingots  of  bullion. 
I  should  "prefer,  therefore,  to  say,  coins  are  ingots  of 
ivhich  the  ic  eight  and  fineness  are  certified  by  the  integrity 
of  designs  impressed  upon  the  surfaces  of  the  metal. 

Various  Forms  of  Coins. 

From  time  to  time  coins  have  been  manufactured  in 
very  many  forms,  although  circular  coins  vastly  predomi- 


58  MONEY. 

nate  in  number.  Among  the  innumerable  issues  of  the 
German  states  may  be  found  octagonal  and  hexagonal 
coins.  A  singular  square  coin,  with  a  circular  impress 
in  the  centre,  was  issued  from  Salzburg  by  Kudbert  in 
1513.  Siege-pieces  have  been  issued  in  England  and 
elsewhere  in  the  form  of  squares,  lozenges,  etc.  Some  of 
the  most  extraordinary  specimens  of  money  ever  used 
are  the  large  plates  of  pure  copper  which  circulated  in 
Sweden  in  the  eighteenth  century.  These  were  about 
three-eighths  of  an  inch  in  thickness,  and  varied  in  size, 
the  half-daler  being  3  J  inches  square,  and  the  two-daler 
piece  as  much  as  7J  inches  square,  and  3J-  pounds  in 
weight.  As  the  whole  surface  could  not  be  covered  with 
a  design,  a  circular  impress  was  struck  near  to  each 
corner,  and  one  in  the  centre,  so  as  to  render  alteration 
as  difficult  as  possible. 

Among  Oriental  nations  the  shapes  of  coins  are  still 
more  curious.  In  Japan,  the  principal  part  of  the  cir- 
culation consists  of  silver  itzibus,  which  are  oblong,  flat 
pieces  of  silver,  covered  on  both  sides  with  designs  and 
legends,  the  characters  being  partly  in  relief  and  partly 
incised.  The  smaller  silver  coins  have  a  similar  form. 
Among  the  minor  Japanese  coins  are  found  Jarge,  oval, 
moulded  pieces  of  copper  or  mixed  metal,  each  with  a 
square  hole  in  the  centre.  The  Chinese  cash  are  well 
known  to  be  round  discs  of  a  kind  of  brass,  with  a  square 
hole  in  the  centre  to  allow  of  their  being  strung  together. 
The  coins  of  Formosa  are  similar,  except  that  they  are 
much  larger  and  thicker.  All  the  copper  and  base  metal 
coins  of  China,  Japan,  and  Formosa  are  distinguished  by 


COINS.  59 

a  broad  flat  rim,  and  they  have  characters  in  relief  upon 
a  sunk  ground,  somewhat  in  the  manner  of  Boulton  and 
Watt's  copper  pence.  They  are  manufactured  by  mould- 
ing the  metal,  and  then  filing  the  protuberant  parts 
smooth.  Such  »coins  stand  wear,  and  preserve  their 
design  better  than  European  coins,  but  they  are  easily 
counterfeited. 

The  most  singular  of  all  coins  are  the  scimitar-shaped 
pieces  formerly  circulated  in  Persia. 

The  best  Form  for  Coins. 

It  is  a  matter  of  considerable  importance  to  devise 
the  best  possible  form  for  coins,  and  the  best  mode  of 
striking  them.  The  use  of  money  creates,  as  it  were, 
an  artificial  crime  of  false  coining,  and  so  great  is  the 
temptation  to  engage  in  this  illicit  art  that  no  penalty  is 
sufficient. to  repress  it,  as  the  experience  of  two  thousand 
years  sufficiently  proves.  Thousands  of  persons  have 
suffered  death,  and  all  the  penalties  of  treason  have 
been  enforced  without  effect.  Euding  is  then  unquestion- 
ably right  in  saying,  that  our  efforts  should  be  directed 
not  so  much  to  the  punishment  of  the  crime,  as  to  its 
prevention  by  improvements  in  the  art  of  coining.  We 
must  strike  our  coins  so  perfectly  that  successful  imita- 
tion or  alteration  shall  be  out  of  the  question-. 

There  are  four  principal  objects  at  which  we  should 
aim  in  deciding  upon  the  exact  design  for  a  coin. 

1.  To  prevent  counterfeiting. 

2.  To  prevent  the  fraudulent  removal  of  metal  from 
the  coin. 


60  MONEY. 

8.  To  reduce  the  loss  of  metal  by  legitimate  wear 
and  tear. 

4.  To  make  the  coin  an  artistic  and  historical  monu- 
ment of  the  state  issuing  it,  and  the  people  using  it. 

For  the  prevention  of  counterfeiting,  t)ur  principal  re- 
source is  to  render  the  mechanical  execution  of  the  piece 
as  perfect  as  possible,  and  to  strike  it  in  a  way  which  can 
only  be  accomplished  with  the  aid  of  elaborate  machinery. 
When  all  coins  were  made  by  casting,  the  false  coiner 
could  work  almost  as  skilfully  as  the  moneyer.  Hence, 
in  the  Roman  empire,  it  was  difficult  to  distinguish 
between  true  and  false  coin.  Hammered  money  was  a 
great  improvement  on  moulded  money,  and  milled  money 
on  hammered  money.  The  introduction  of  the  steam 
coining  press  by  Boulton  and  Watt  was  the  next  great 
improvement;  and  the  knee-joint  press  of  Ulhorn  and 
Thonnelier,  now  used  in  nearly  all  mints,  except  that  on 
Tower  Hill,  forms  the  last  advance  in  the  mechanism 
for  striking  coin. 

The  utmost  attention  ought  to  be  paid  to  the  perfect 
execution  of  the  milling,  legend,  or  other  design,  impressed 
upon  the  edge  of  modern  coins.  This  serves  at  once  to 
prevent  clipping  or  tampering  with  the  coin,  and  to 
baffle  the  skill  of  the  counterfeiter.  The  coins  of  ancient 
nations  were  issued  with  rough,  unstamped  edges,  and 
the  first  coin  marked  with  a  legend  on  the  edge  was  a 
silver  coin  of  Charles  IX.  of  France,  issued  in  the  year 
1573.  The  English  coinage  was  first  grained  or  marked 
on  the  edge  in  1658  or  1662,  when  the  use  of  the  mill 
and  screw  was  finally  established  in  the  mint.  All  the 


COINS.  61 

larger  coins  now  issued  from  the  English,  and,  indeed, 
from  most  other  mints,  bear  a  milled  or  serrated  edge, 
produced  by  ridges  on  the  internal  surface  of  the  collar 
which  holds  the  coin  when  being  struck  between  the  two 
dies.  These  collars  are  difficult  to  make,  and  useless  when 
made  except  in  the  coining-press,  and  the  counterfeiter 
cannot  imitate  the  milling  by  hand  work,  it  being  almost 
impossible  to  use  a  file  with  sufficient  regularity. 

The  French  five-franc  pieces  bear  a  legend  on  the 
edge  in  raised  letters,  the  words  being  "  Dieu  protege  la 
France."  Such  raised  letters  are  quite  beyond  the  art 
of  the  counterfeiter.  The  English  crown  has  a  legend, 
"Decus  et  Tutamen,"  and  the  year  of  the  reign  in 
incised  letters,  which  could  obviously  be  imitated  by  the 
use  of  punches.  The  new  German  gold  coins  are  issued 
with  smooth  edges,  the  ten-mark  piece  having  only 
a  few  slight  incised  marks,  and  the  twenty-mark 
piece  bearing  the  legend,  "  Gott  mit  uns,"  in  faint 
letters ;  this  is  surely  a  far  less  satisfactory  pro. 
tection  than  the  milled  edge  adopted  in  most  other 
mints.  It  may  be  worthy  of  inquiry,  whether  the  milled 
edge  might  not  be  combined  with  a  legend  or  other  design 
in  relief,  so  as  to  render  imitation  still  more  difficult. 
One  or  two  centuries  ago,  silver  coins  used  to  have  a 
kind  of  ornamental  beading  on  the  edge.  Elaborate 
patterns,  produced  by  machinery  with  perfect  regularity, 
and  altogether  incapable  of  imitation  by  hand,  might  now 
be  substituted. 


62     '  MONEY. 

Coins  as  Works  of  Art. 

I  have  in  the  previous  section  considered  the  best  form 
of  a  coin  as  regards  the  prevention  of  counterfeiting. 
The  falsification  of  coins,  the  loss  which  they  undergo 
by  abrasion,  and  the  best  means  of  avoiding  these  evils 
will  be  treated  in  Chapter  XIII.  Of  the  use  of  coins  as 
artistic  medals  it  would  not  be  appropriate  to  speak  at 
any  length.  I  must  however  remark  that  many  of  the 
coins  still  issued  from  the  English  mint  *are  monuments 
of  bad  taste.  It  is  difficult  to  imagine  poorer  designs 
than  those  upon  the  shilling  and  sixpence,  descending 
from  a  time  when  art  in  many  branches  was  at  its 
apogee  in  England.  As  our  architecture  and  art  manu- 
factures of  many  kinds  are  regenerated  by  the  efforts  of 
private  persons,  is  it  too  much  to  hope  that  a  govern- 
ment department  will  follow  ?  The  florin  is  indeed  an 
immense  advance  upon  the  shilling,  being  in  some 
respects  a  reversion  to  the  style  of  old  English  money. 
A  very  beautiful  pattern  crown  piece  was  produced  in 
1847,  in  a  somewhat  similar  style,  but  never  issued. 
Mr.  Lowe,  when  Master  of  the  Mint,  gave  us  back  the 
old  George  and  Dragon  sovereign,  which  is  much 
superior  to  the  shield  and  wreaths.  I  think,  however, 
that  the  time  has  come  for  a  general  improvement  in 
our  coins. 

Historical  Coins. 

Some  states  have  utilized  their  coins  as  monuments 
of  important  events,  such  as  conquests,  jubilees,  the  acces- 


COINS.  63 

sion  of  monarchs,  etc.  The  German  states,  especially 
Prussia,  have  struck  a  long  series  of  beautiful  coins 
clown  to  the  Kronung's  Thaler  of  1861,  and  the  Sieges 
Thaler  of  1871.  Some  of  these  coins  are  at  once 
treasured  up  in  cabinets  in  the  manner  of  medals.  If  it 
is  possible  to  conceive  literature  destroyed,  and  modern 
cities  and  their  monuments  in  ruins  and  decay,  such 
medallic  coins  would  become  the  most  durable  memorials, 
and  the  history  of  the  kings  of  Prussia  would  be  traced 
out  by  future  numismatists  as  that  of  the  great 
dynasties  of  Bactria  has  lately  been  recovered. 

In  1842  M.  Antenor  Joly  brought  before  the  French 
legislative  chambers  a  scheme  for  a  system  of  historical 
money,  and  he  renewed  his  proposal  in  1852.  M.  Ernest 
Dumas  has  also  suggested  the  issue  of  twenty-centime 
bronze  pieces,  which  should 'serve  either  as  money  or  as 
historical  medals.  Such  schemes  have  not  been  carried 
out  in  France,  and  in  England  no  coins  of  the  sort 
have  been  struck.  Except  the  mere  expense  of  a  new  set 
of  dies,  I  see  no  objection  to  the  issue  of  historical  money. 

The  Royal  Attribute  of  Coining. 

Every  civilized  community  requires  a  supply  of  well- 
executed  coins,  and  there  arises  the  question,  How  shall 
this  money  be  provided  ?  The  coins  of  each  denomina- 
tion must  contain  exactly  equal  weights  of  fine  metal, 
and  must  bear  an  impress  proving  that  they  do  so.  Can 
we  trust  to  the  ordinary  competition  of  manufacturers 
and  traders  to  keep  up  a  sufficient  supply  of  such  coins, 


64  MONEY. 

just  as  they  supply  buttons  or  pins  and  needles?  Or 
must  we  establish  a  government  department,  under 
strict  legislative  control,  to  secure  good  coinage  ? 

As  almost  every  opinion  finds  some  advocate,  there 
are  not  wanting  a  few  who  believe  that  coinage  should 
be  left  to  the  free  action  of  competition.  Mr.  Herbert 
Spencer  especially,  in  his  "  Social  Statics,"  advanced 
the  doctrine  that,  as  we  trust  the  grocer  to  furnish  us 
with  pounds  of  tea,  and  the  baker  to  send  us  loaves  of 
bread,  so  we  might  trust  Heaton  and  Sons,  or  some  of 
the  other  enterprising  firms  of  Birmingham,  to  supply 
us  with  sovereigns  and  shillings  at  their  own  risk  and 
profit.  He  held  that  just  as  people  go  by  preference  to 
the  grocer  who  sells  good  tea,  and  to  the  baker  whose 
p  loaves  are  sound  and  of  full  weight,  so  the  honest  and 
successful  coiner  would  gain  possession  of  the  market, 
and  his  money  would  drive  out  inferior  productions. 

Though  I  must  always  deeply  respect  the  opinions  of 
so  profound  a  thinker  as  Mr.  Spencer,  I  hold  that  in  this 
instance  he  has  pushed  a  general  principle  into  an  ex- 
ceptional case,  where  it  quite  fails.  He  has  overlooked 
the  important  law  of  Gresham  (to  be  explained  in  the 
next  chapter),  that  better  money  cannot  drive  out  worse. 
In  matters  of  currency  self-interest  acts  in  the  opposite 
direction  to  what  it  does  in  other  affairs,  as  will  be  ex- 
plained, and  if  coining  were  left  free,  those  who  sold 
light  coins  at  reduced  prices  would  drive  the  best  trade. 

This  conclusion  is  amply  confirmed  by  experience ;  for 
at  many  times  and  places  coins  have  been  issued  by 
private  manufacturers,  and  always  with  the  result  of 


COINS.  65 

debasing  the  currency.  For  a  long  time  the  copper 
currency  of  England  consisted  mainly  of  tradesmen's 
tokens,  which  were  issued  very  light  in  weight  and  ex- 
cessive in  number.  In  Mr.  Smiles'  "  Lives  of  Boulton  and 
Watt"  (p.  391),  there  is  printed  an  interesting  letter,  in 
which  Boulton  complains  that  in  his  journeys  he  received 
on  an  average  at  the  toll-gates  two  counterfeit  pennies  for 
one  true  one.  The  lower  class  of  manufacturers,  he  says, 
purchased  copper  coin  to  the  nominal  value  of  thirty-six 
shillings  for  twenty  shillings  in  silver,  and  distributed  it  to 
their  work-people  in  wages,  so  as  to  make  a  considerable 
profit.  The  multitude  of  these  depreciated  pieces  in 
circulation  was  so  great,  that  the  magistrates  and  in- 
habitants of  Stockport  held  a  public  meeting,  and  resolved 
to  take  no  halfpence  in  future  but  those  of  the  Anglesey 
Company,  which  were  of  full  weight.  This  shows,  if 
proof  were  needed,  that  the  separate  action  of  self-interest 
was  inoperative  in  keeping  bad  coin  out  of  circulation, 
and  it  is  not  to  be  supposed  that  the  public  meeting  could 
have  had  any  sufficient  effect.  In  China  the  current 
small  money  called  cash  or  le,  is  commonly  manu- 
factured by  private  coiners,  and  the  consequence  is  that 
the  size,  quality,  and  value  of  the  coins  have  fallen  very 
much. 

In  my  opinion  there  is  nothing  less  fit  to  be  left  to 
the  action  of  competition  than  money.  In  constitutional 
law  the  right  of  coining  has  always  been  held  to  be  one 
of  the  peculiar  prerogatives  of  the  Crown,  and  it  is  a 
maxim  of  the  civil  law,  that  monetandi  jus  principum 
ossibus  inhceret.  To  the  executive  government  and  its 


66  MONEY, 

scientific  advisers,  who  have  minutely  inquired  into  the 
intricacies  of  the  subject  of  currency  and  coinage,  the 
matter  had  better  be  left.  It  should  as  far  as  possible 
be  removed  from  the  sphere  of  party  struggles  or  public 
opinion,  and  confided  to  the  decision  of  experts.  No 
doubt,  in  times  past,  kings  have  been  the  most  notorious 
false  coiners  and  depreciatory  of  the  currency,  but  there 
is  no  danger  of  the  like  being  done  in  modern  times. 
The  danger  lies  quite  in  the  opposite  direction,  that 
popular  governments  will  not  venture  upon  the  most 
obvious  and  necessary  improvement  of  the  monetary 
system  without  obtaining  a  concurrence  of  popular  opinion 
in  its  favour,  while  the  people,  influenced  by  habit,  and 
with  little  knowledge  of  the  subject,  will  never  be  able  to 
agree  upon  the  best  scheme. 


CHAPTEB  VIII. 

THE  PRINCIPLES  OF  CIRCULATION. 

BEFORE  proceeding  to  consider  the  actual  monetary 
systems  adopted  by  modern  or  ancient  nations,  it  is 
desirable  to  dwell  for  a  short  time  upon  the  different 
meanings  which  may  be  attributed  to  the  word  money, 
and  upon  the  natural  principles  which  govern  the  use 
and  circulation  of  coins.  We  must,  in  the  first  place, 
distinguish  three  things  which,  in  the  practical  working 
of  a  currency  system,  are  often  separate,  namely,  the 
actual  coins  employed,  the  numbers  by  which  they  are 
expressed,  and  the  relation  of  those  numbers  to  the 
assumed  unit  of  value.  We  must  further  distinguish 
coins  according  as  their  values  depend  upon  the  metal 
they  contain,  the  metal  for  which  they  can  be  exchanged, 
or  the  other  coins  for  which  they  are  the  legal  equivalent. 

The  Standard  Unit  of  Value. 

It  is  essential,  in  the  first  place,  to  decide  clearly 
what  we  mean  by  a  standard  unit  of  value.  This  must 
consist  of  a  fixed  quantity  of  some  concrete  substance, 


68  MONEY. 

defined  by  reference  to  the  units  of  weight  or  space. 
Value  may  seem  to  some  people  to  he  a  purely  mental 
phenomenon,  and  a  pound  would  then  have  to  he  defined, 
as  Lord  Castlereagh  asserted,  by  a  sense  of  value.  But 
we  might  as  well  define  a  yard  by  a  sense  of  length,  or  a 
grain  by  a  sense  of  weight.  Just  as  every  quantity  in 
physical  science  is  defined  by  reference  to  some  concrete 
standard  specimen,  so,  if  we  are  to  measure  and  express 
value  at  all,  we  must  fix  upon  definite  quantities  of  one 
or  more  definite  and  unchangeable  commodities  for  the 
purpose. 

The  expression,  standard  unit  of  value,  will  indeed  be 
almost  inevitably  misunderstood  as  implying  the  exist- 
ence of  something  of  fixed  value.  As  we  have  seen, 
however  (p.  11),  value  merely  expresses  the  essentially 
variable  ratio  in  which  two  commodities  exchange,  so 
that  there  is  no  reason  to  suppose  that  any  substance 
does  for  two  days  together  retain  the  same  value.  All 
that  a  standard  of  value  means  is,  that  some  uniform 
unchangeable  substance  is  chosen,  in  terms  of  which  all 
ratios  of  exchange  may  be  expressed  and  calculated, 
without  any  regard  whatever  to  the  feelings  or  mental 
phenomena  which  the  commodities  produce  in  men.  For 
reasons  already  stated,  one  or  other  of  the  metals,  gold, 
silver,  or  copper,  has  usually  been  considered  most 
suitable  for  constituting  the  standard  substance. 

The  absolute  weight  or  magnitude  of  the  unit  of 
money  is  a  matter  of  little  or  no  importance,  provided 
that  all  people  agree  upon  the  same  unit,  and  that  it 
be  permanently  and  exactly  defined,  and  afterwards 


THE    PRINCIPLES   OF    CIRCULATION.  69 

adhered  to.  Before  the  English  yard  was  fixed,  it  would 
not  have  mattered  whether  it  was  a  few  inches  longer 
or  shorter ;  it  does  not  matter,  indeed,  whether  the  inch, 
the  foot,  the  furlong,  or  the  mile  is  the  unit,  provided 
that  one  of  them  is  definitely  fixed,  and  the  others 
referred  to  it  by  known  ratios.  So,  it  is  really  indifferent 
whether  we  regard  the  pound  troy  of  standard  gold,  or 
the  ounce,  or  the  fixed  number  of  grains  in  the  sovereign, 
as  our  standard.  It  is  only  requisite  that  every  contract 
expressed  in  money  shall  enable  us  to  ascertain  exactly 
how  much  standard  gold  is  due  from  one  person  to 
another. 

M.  Chevalier  and  some  other  continental  economists 
have  argued  elaborately  in  favour  of  a  universal  standard 
unit  of  value,  coinciding  with  the  metric  system  of 
weights.  They  wish  the  unit  of  value  to  be  ten  grams 
of  gold  exactly,  and  seem  to  think  that  there  is  some 
magical  efficacy  in  the  correspondence  of  money  and 
weights.  This  correspondence  might  perhaps  be  a  slight 
convenience  to  those  bullion  dealers  who  have  to  calcu- 
late the  metallic  value  of  coins  before  melting  or  export- 
ing them,  or  to  those  mint  officials  who  have  to  adjust 
and  test  the  weights  of  coins ;  to  all  other  persons  it  would 
be  a  matter  of  complete  indifference.  Those  who  use 
coins  in  ordinary  business  need  never  inquire  how  much 
metal  they  contain.  Probably  not  one  person  in  ten 
thousand  in  this  kingdom  knows,  or  need  know,  that  a 
sovereign  should  contain  123'27447  grains  of  standard 
gold.  Besides,  if  we  agree  to  accept  a  precise  metrical 
quantity  of  one  metal  as  our  standard,  the  weights  of 


70  MONEY. 

the  coins  composed  of  other  metals  will  be  complicated 
fractional  amounts,  to  be  determined  with  reference  to 
the  accidental  market  values  of  the  metals. 

All  we  can  say,  then,  is  that  the  standard  unit  of  value 
is  some  entirely  arbitrary  weight  of  the  standard  metal, 
the  exact  amount  of  which,  being  a  matter  of  indiffer- 
ence on  general  grounds,  should  be  fixed  as  seems  most 
convenient  in  reference  to  the  habits  of  nations  or  other 
accidental  circumstances. 

Coin,  Money  of  Account,  and  Unit  of  Value. 

It  is  desirable  to  distinguish  clearly  between  three 
things  which,  although  definitely  related  to  each  other, 
need  not  be  identical.  The  unit  of  value,  or  standard 
weight  of  the  selected  metal,  is  not  necessarily  made  into 
a  coin.  It  may  be  a  quantity  too  great  or  too  small  for 
coining.  All  that  is  requisite  is  that  the  current  coins 
shall  be  multiples  or  submultiples  of  the  unit,  or 
easily  expressible  in  terms  of  the  unit.  Nor  is  it  even 
requisite  that  the  numbers  in  which  we  express  value 
should  be  numbers  of  coins,  or  numbers  of  units  of  value. 
The  money  of  account,  as  it  is  called,  may  differ  both 
from  the  current  money  and  the  standard  money. 
This  is  well  illustrated  in  the  Anglo-Saxon  system  of 
currency.  The  unit  of  value  was  the  Saxon  pound  of 
standard  silver,  which  was  far  too  large  to  be  coined. 
The  only  coins  issued  in  any  considerable  quantity  by 
the  Anglo-Saxon  kings,  were  silver  pennies  and  a  few 
halfpennies;  yet  the  usual  money  of  account  was  the 


THE   PRINCIPLES    OF    CIRCULATION.  71 

shilling,  which,  after  varying  from  four  to  five  pence, 
was  fixed  by  William  I.  at  twelve  pence,  as  it  has  ever 
since  continued.  No  /join  called  a  shilling  was  issued 
before  the  reign  of  Henry  VII.  Though  the  shilling 
has  survived,  other  moneys  of  account  have  been  for- 
gotten, as,  for  instance,  the  mancus,  which  was  equal  to 
thirty  pennies,  or  six  shillings  of  five  pence  each.  The 
mark,  the  era,  and  the  thrimsa  were 'other  moneys  of 
account  used  by  the  Anglo-Saxons. 

In  our  present  English  system  the  three  moneys 
happen  to  coincide,  which  is  doubtless  a  matter  of  some 
convenience.  The  sovereign  is  at  once  the  principal 
coin,  the  unit  of  value,  and  the  money  of  account  in 
all  the  larger  transactions,  although  in  the  expression 
of  smaller  sums  the  shilling  is  yet  preferred.  In  France 
at  the  present  time  the  money  of  account  and  the  unit  of 
value  is  the  franc  in  gold;  but  as  this  weighs  only 
0'3226  gram,  or  about  five  grains,  it  is  coined  only  in 
five,  ten,  and  twenty-franc  gold  pieces,  with  subsidiary 
silver  coins.  In  Russia,  before  the  time  of  Peter  the 
Great,  the  rouble  was  an  imaginary  money  of  account, 
consisting  of  one  hundred  copper  copecks. 

When  Montesquieu  affirmed  that  the  negroes  on  the 
West  Coast  of  Africa  had  a  purely  ideal  sign  of  value 
called  a  macute,  he  misunderstood  the  nature  of  money 
of  account.  The  macute  served  with  the  negroes  as 
the  name  for  a  definite,  though  probably  a  variable, 
number  of  cowry  shells,  the  number  being  at  one  time 
2000.  The  macute  has  also  been  coined  in  silver  pieces 
of  eight,  six,  and  four  macutes,  struck  by  the  Portuguese 


72  MONEY. 

for  use  in  their  colonies,  the  macute  being  worth  about 


When  the  currency  of  a  country  undergoes  a  change, 
the  units  of  coinage,  account  and  value  are  likely  to 
become  separated.  Sometimes  a  new  system  of  accounts 
is  applied  to  an  old  coinage,  as  in  Norway  at  the  present 
time.  The  Stockholm  government  is  endeavouring  to 
introduce  the  Swedish  decimal  system  of  currency,  and 
some  merchants  are  said  already  to  keep  their  accounts 
in  kroner  and  ore,  although  the  money  in  circulation 
consists  almost  wholly  of  the  old  skillings  and  the  paper 
specie-dalers.  On  the  other  hand,  the  coinage  is  some- 
times changed,  and  yet  the  old  method  of  accounts 
retained,  especially  as  regards  foreign  transactions. 
Thus  the  rates  of  foreign  exchange  between  the  United 
States  and  England  were,  until  last  year,  quoted  in 
terms  of  a  dollar  valued  at  4s.  6<i.,  in  accordance  with 
a  law  of  1789.  This  rate  seems  to  have  been  the  tra- 
ditional par  of  exchange  of  the  Mexican  dollar,  and  it 
was  still  retained  even  when  the  American  dollar  had 
been  coined  so  as  to  be  worth  only  49*316  English 
pence. 

There  are  two  causes  which  have  often  led  to  a 
difference  between  coinage  and  money  of  account.  The 
coins  may,  by  legitimate  abrasion,  or  by  fraudulent  clip- 
ping and  sweating,  become  much  reduced  below  their 
proper  weights,  yet  an  agio,  or  allowance,  being  made  for 
the  average  depreciation,  the  old  standard  of  value  and 
money  of  account  may  be  retained,  as  was  the  case  in 
Amsterdam,  Hamburg,  and  other  towns.  When  a  depre- 


THE    PRINCIPLES    OF    CIRCULATION.  73 

ciated  currency  is  issued  in  a  country,  the  money  of 
account  may  either  change  with  it  or  remain  as  before ; 
and  it  is  an  exceedingly  difficult,  if  not  insoluble  problem, 
to  decide  whether,  in  particular  periods  of  English  his- 
tory, prices  were  expressed  in  the  new  depreciated  or  the 
old  good  money.  Professor  J.  E.  T.  Eogers  has  pointed 
out,  in  his  admirable  "  History  of  Agriculture  and  Prices 
in  England,"  printed  by  the  Clarendon  Press  (vol.  i.  p. 
175),  that,  in  the  fourteenth  century,  the  coinage,  though 
apparently  passed  by  tale,  was  often  weighed.  In  the 
ancient  college  accounts  which  he  has  investigated,  he 
finds  charges  entered  both  for  the  cost  of  scales  to 
make  the  weighings,  and  for  the  deficiency  of  weight 
of  the  coins. 

In  many  countries,  even  at  the  present  day,  the 
circulating  medium  consists  not  of  any  one  simple  and 
well-connected  series  of  coins,  but  of  a  miscellaneous 
collection  of  coins  of  various  sizes  and  values,  imported 
from  foreign  states.  In  such  cases  the  money  of 
account  must  necessarily  differ  from  the  mass  of  tne 
coins,  of  which  the  value  is  usually  estimated  by  a  tariff 
expressed  in  terms  of  the  money  of  account.  In  the 
German  states,  a  few  years  ago,  French  and  English  gold 
was  freely  accepted  in  this  manner.  In  Canada  there 
was  in  former  years  an  intricate  confusion  of  monetary 
systems.  Many  species  of  foreign  coins,  chiefly  varieties 
of  the  dollar,  were  in  circulation.  There  were  also  two 
separate  moneys  of  account,  namely,  the  Halifax  Currency 
Pound  divided  into  twenty  shillings  of  twenty  pence  each, 
and  defined  by  the  fact  that  sixty  such  pence  were  equal 


74:  MONEY. 

to  one  dollar ;  and,  secondly,  the  Halifax  Sterling  Cur- 
rency. The  latter  is  still  employed  to  express  the  foi 
eign  exchanges.  The  present  monetary  unit  of  Canada 
is  the  dollar,  and  the  currency  consists  of  bank-notes, 
with  silver  coins  of  50,  25,  20,  10,  and  5  cents;  but 
English  sovereigns  and  half  sovereigns  are  also  in  cir- 
culation. 

Standard  and  Token  Money. 

We  must  distinguish  between  coins  according  as 
they  serve  for  standard  money  or  for  token  money.  A 
standard  coin  is  one  of  which  the  value  in  exchange 
depends  solely  upon  the  value  of  the  material  contained 
in  it.  The  stamp  serves  as  a  mere  indication  and 
guarantee  of  the  quantity  of  fine  metal.  "We  may  treat 
such  coins  as  bullion,  and  melt  them  up  or  export  them 
to  countries  where  they  are  not  legally  current ;  yet  the 
value  of  the  metal  being  independent  of  legislation  will 
everywhere  be  recognised. 

Token  coins,  on  the  contrary,  are  denned  in  value  by 
the  fact  that  they  can,  by  force  of  law  or  custom,  be 
exchanged  in  a  certain  fixed  ratio  for  standard  coins. 
The  metal  contained  in  a  token  coin  has  of  course  a 
certain  value;  but  it  may  be  less  than  the  legal  value 
in  almost  any  degree.  In  our  English  silver  coinage  the 
difference  is  from  9  to  12  per  cent.,  according  to  the 
market  price  of  silver ;  in  our  bronze  coinage  the  differ- 
ence is  75  per  cent.  The  metal  contained  in  the  French 
bronze  coins  is  in  like  manner  equal  in  value  to  little 


THE    PRINCIPLES    OF    CIRCULATION.  75 

more  than  one  quarter  of  the  current  value.  In  many 
cases  the  difference  has  been  far  greater,  as  for  instance 
in  some  of  the  old  kreutzer  pieces  lately  current  in  the 
German  states.  Woods's  halfpence,  which  at  one  time 
created  so  much  discontent  in  Ireland,  or  the  small 
money  previously  issued  by  James  II.  in  Ireland,  are 
extreme  instances  of  depreciated  token  money. 

Metallic  and  Nominal  Values  of  Coins. 

It  has  been  usual  to  call  the  value  of  the  metal 
contained  in  a  coin  the  intrinsic  value  of  the  coin;  but 
this  use  of  the  word  intrinsic  is  likely  to  give  rise  to 
fallacious  notions  concerning  the  nature  of  value,  which 
is  never  an  intrinsic  property,  or  existence,  but  merely 
a  circumstance,  or  external  relation  (see  p.  9).  To 
avoid  any  chance  of  ambiguity,  I  shall  substitute  the 
expression,  metallic  value,  and  I  shall  distinguish  this 
from  the  nominal,  customary,  or  legal  value,  at  which 
a  coin  actually  does,  or  is  by  law  required,  to  exchange 
for  other  coins.  • 

There  are  two  ways  in  which  the  metallic  value 
of  a  coin  may  be  reduced  below  its  nominal  value, 
namely,  by  reducing  either  the  weight  or  the  fineness 
of  the  metal.  English  silver  coin  is  still  maintained 
at  the  "  ancient  right  standard "  of  11  oz.  2  dwts.  in 
the  troy  pound,  which  has  existed  from  time  imme- 
morial. By  the  Act  of  1816  the  silver  coins  which  had 
previously  been,  in  theory  at  least,  standard  money, 
were  reduced  in  weight  by  6  per  cent.,  and  thus  rendered 


/O  MONEY. 

token  money,  which  they  still  continue  to  be.  In  France 
and  other  countries  belonging  to  the  Monetary  Conven- 
tion, the  smaller  silver  coins  of  two  francs,  one  franc, 
and  fifty  centimes,  have  been  converted  into  tokens  by 
reducing  the  fineness  of  the  silver  from  900  to  835  parts 
in  1000.  It  does  not  seem  to  be  a  matter  of  any  import- 
ance which  mode  is  adopted ;  but  the  English  mode,  so 
long  as  it  does  not  render  the  coins  inconveniently  small, 
is  perhaps  slightly  the  better,  because  some  persons  can 
satisfy  themselves  as  to  the  weight  of  a  coin,  but  none 
are  able  to  test  its  fineness,  unless  they  are  professional 
assayers. 

It  need  hardly  be  stated  that  coins  which  circulate 
by  law  in  one  country  as  tokens  may  be  accepted  in 
other  countries  at  their  metallic  value. 

Legal  Tender. 

Money  must  farther  be  distinguished,  according  as  it 
is  or  is  not  legal  tender,  or  has  or  has  not  what  the 
French  call  cours  force.  By  legal  tender  is  denoted 
such  money  as  a  creditor  is  obliged  to  receive  in  requital 
of  a  debt  expressed  in  terms  of  money  of  the  realm.  One 
great  object  of  legislation  is  to  prevent  uncertainty  in 
the  interpretation  of  contracts,  and  accordingly  the 
Coinage  Act  defines  precisely  what  will  constitute  a  legal 
offer  of  payment  on  the  part  of  a  debtor,  as  regards 
a  money  debt.  If  a  debtor  tender  to  his  creditor  the 
amount  of  a  debt  due  in  legal  tender  money,  and  it  be 
refused,  the  creditor  may  indeed  apply  for  it,  or  sue  for 


THE    PRINCIPLES    OF    CIRCULATION.  77 

it  afterwards,  but  the  costs  of  the  action  will  be  thrown 
upon  him. 

But  there  seems  to  be  no  legal  necessity  that 
exchanges  or  contracts  shall  be  made  in  money  of  the 
realm.  At  common  law,  contracts  for  the  direct  barter 
of  two  commodities,  or  for  purchase  and  sale  in  terms  of 
any  kind  of  money,  will  be  valid,  provided  it  is  clear 
what  the  terms  of  the  contract  mean.  Accordingly, 
the  sixth  section  of  the  Coinage  Act  (33  Viet.  c.  10), 
while  enacting  that  every  contract,  sale,  payment,  bill, 
note,  transaction,  or  matter  relating  to  money,  shall  be 
made  or  done  according  to  the  coins  which  are  current 
and  legal  tender  in  pursuance  of  this  Act,  yet  adds, 
"  unless  the  same  be  made,  executed,  entered  into,  done  or 
had,  according  to  the  currency  of  some  British  posses- 
sion or  some  foreign  state." 

If  I  understand  the  matter  aright,  then,  every  person 
is  at  liberty  to  buy,  sell,  or  exchange  in  terms  of  any 
money  or  commodity  whatsoever  which  he  prefers ;  and 
the  fact  that  certain  coins,  up  to  certain  limits,  are 
legal  tender,  only  means  that  the  state  provides  a  de- 
finite medium  of  exchange  and  defines  precisely  what 
that  is.  The  Act  requires  that  English  money  shall  be 
the  money  issued  by  the  mint,  in  accordance  with  the 
terms  of  the  Act.  Of  course  it  remains  quite  open  to  a 
creditor  to  receive  payment  in  coins  which  are  not  legal 
tender,  if  he  like  to  do  so,  and  I  presume  there  would 
be  nothing  to  prevent  him  entering  into  a  contract  to 
that  effect.  If  a  man  contracted  to  sell  goods  to  the 
extent  of  ^£100,  and  to  receive  payment  in  bronze  pence 


78  MONEY. 

and  halfpence,  it  would  no  doubt  be  a  valid  contract, 
although  no  single  quantity  of  pence  exceeding  twelve 
pence  is  a  legal  tender. 

The  exact  meaning  of  the  term,  legal  tender,  may  of 
course  vary  from  country  to  country,  and  the  above 
remarks  apply  only  to  countries  under  the  English  law. 

The  Force  of  Habit  in  the  Circulation  of  Money. 

No  one  can  possibly  understand  many  social  phe- 
nomena unless  he  constantly  bears  in  mind  the  force  of 
habit  and  social  convention.  This  is  strikingly  true  in 
our  subject  of  money.  Over  and  over  again  in  the 
course  of  history,  powerful  rulers  have  endeavoured  to  put 
new  coins  into  circulation  or  to  withdraw  old  'ones ;  but 
the  instincts  of  self-interest  or  habit  in  the  people  have 
been  too  strong  for  laws  and  penalties.  Though  in 
particular  instances  it  may  be  difficult  to  explain  occur- 
rences which  happen  in  the  circulation  of  coins,  yet  a 
close  analysis  of  the  character  of  those  who  handle 
money,  and  their  motives  for  holding  or  paying  it  away, 
will  throw  much  light  upon  the  subject. 

We  must  notice,  in  the  first  place,  that  the  great 
mass  of  the  population  who  hold  coins  have  no  theories, 
or  general  information  whatever,  upon  the  subject  of 
money.  They  are  guided  entirely  by  popular  report 
and  tradition.  The  sole  question  with  them  on  receiv- 
ing a  coin  is  whether  similar  coins  have  been  readily 
accepted  by  other  people.  Thus  in  the  remote  parts  of 
Norway  at  the  present  time,  the  old  paper  daler  notes 


THE    PRINCIPLES    OP    CIRCULATION.  79 

aie  preferred  to  the  beautiful  new  twenty-kroner  gold 
pieces.  By  far  the  greater  number  of  the  people  pos- 
sess no  means  of  learning  the  metallic,  or  even  the  legal, 
value  of  an  unfamiliar  coin.  Few  people  have  scales 
and  weights  suitable  for  weighing  a  coin,  and  no  one 
but  an  assay er  or  analytical  chemist  can  decide  upon 
its  fineness.  Many  a  traveller  who  has  carried  good 
new  coin  into  a  country  where  it  happened  to  be  strange, 
has  had  to  suffer  a  loss  in  paying  it  away.  When  our 
bronze  pence  were  quite  a  novelty,  I  happened  to  take 
some  with  me  into  a  remote  part  of  North  Wales,  and 
they  were  rejected. 

People  in  general  accept  coin  simply  on  the  ground 
of  its  familiar  appearance.  So  entirely  is  this  the  case 
among  very  ignorant  populations,  that  it  has  often  been 
found  desirable  to  maintain  unchanged  the  impress  on 
successive  issues  of  coins.  In  many  cases  coins  have 
been  struck  for  this  purpose  with  the  date  of  a  long  past 
year,  or  even  the  effigy  of  a  dead  sovereign.  The  Maria 
Theresa  dollar  is  still  coined  by  the  Austrian  mint, 
with  exactly  the  same  design  and  date  as  when  first 
issued  in  1780,  because  it  is  the  favourite  coin  in  some 
of  the  states  of  North  Africa,  and  various  parts  of  the 
Levant.  The  British  Government,  when  undertaking  the 
Abyssinian  expedition,  procured  a  large  stock  of  these 
coins  for  paying  the  natives.  In  the  same  way  Mexican 
dollars  are  usually  worth  rather  more  than  silver  bullion, 
because  of  their  easy  currency  in  the  East. 

To  the  supremacy  of  habit,  and  the  absence  of  means 
of  estimating  the  real  value  of  coin,  is  obviously  due  the 
5 


80  MONEY. 

depreciation  which  currencies  have  undergone.  False 
coiners  and  kings  alike  find  that,  if  they  can  only  make 
new  coins  look  and  feel  exactly  like  old  coins,  the  people 
will  accept  depreciated  money  without  question. 

The  annals  of  coinage,  in  this  and  all  other  coun- 
tries, are  little  more  than  a  monotonous  repetition  of 
depreciated  issues  both  public  and  private,  varied  by 
occasional  meritorious,  but  often  unsuccessful,  efforts 
to  restore  the  standard  of  the  currency.  A  curious 
instance  of  successive  attempts  to  beguile  a  people  are 
found  in  certain  Roman  denarii  of  the  Consular  times. 
False  coiners  having  issued  plated  denarii  among  the 
subject  Germans,  the  people  appeared  to  have  notched 
them  with  files  to  test  their  genuineness.  The  Germans 
having  thus  become  accustomed  to  see  genuine  notched 
coins,  the  Roman  government  found  it  desirable  to  issue 
new  coins  notched  in  a  similar  manner.  But  the  forgers 
were  not  to  be  beaten.  They  issued  plated  denarii  with 
the  notches  all  complete,  apparently  displaying  good 
metal  within ;  and  notched  false  coins  of  this  kind  exist 
to  the  present  day  in  numismatic  cabinets. 

Gresham's  Law. 

Though  the  public  generally  do  not  discriminate 
between  coins  and  coins,  provided  there  is  an  apparent 
similarity,  a  small  class  of  money-changers,  bullion- 
dealers,  bankers,  or  goldsmiths  make  it  their  business  to 
be  acquainted  with  such  differences,  and  know  how  to 
derive  a  profit  from  them.  These  are  the  people  who 


THE    PRINCIPLES    OF    CIRCULATION.  81 

frequently  uncoin  money,  either  by  melting  it,  or  by 
exporting  it  to  countries  where  it  is  sooner  or  later 
melted.  Some  coins  are  sunk  in  the  sea  or  lost,  and 
some  are  carried  abroad  by  emigrants  and  travellers  who 
do  not  look  closely  to  the  metallic  value  of  the  money. 
But  by  far  the  greatest  part  of  the  standard  coinage  is 
removed  from  circulation  by  people  who  know  that  they 
shall  gain  by  choosing  for  this  purpose  the  new  heavy 
coins  most  recently  issued  from  the  mint.  Hence  arises 
the  practice,  extensively  carried  on  in  the  present  day  in 
England,  of  picking  and  culling,  or,  as  another  technical 
expression  is,  garbling  the  coinage,  devoting  the  good  new 
coins  to  the  melting-pot,  and  passing  the  old  worn  coins 
into  circulation  again  on  every  suitable  opportunity. 

From  these  considerations  we  readily  learn  the  truth 
and  importance  of  a  general  law  or  principle  concerning 
the  circulation  of  money,  which  Mr.  Macleod  has  very 
appropriately  named  the  Law  or  Theorem  of  Gresham, 
after  Sir  Thomas  Gresham,  who  clearly  perceived  its 
truth  three  centuries  ago.  This  law,  briefly  expressed,  is 
that  bad  money  drives  out  good  money,  but  that  good 
money  cannot  drive  out  bad  money.  At  first  sight  there 
may  seem  to  be  something  paradoxical  in  the  fact,  that 
when  beautiful  new  coins  of  full  weight  are  issued  from 
the  mint,  the  people  still  continue  to  circulate,  in  prefer- 
ence, the  old  depreciated  ones.  Many  well-intentioned 
efforts  to  reform  a  currency  have  thus  been  frustrated, 
to  the  great  cost  of  states,  and  the  perplexity  of  states- 
men who  had  not  studied  the  principles  of  monetary 
science. 


82  MONEY. 

In  all  other  matters  everybody  is  led  by  self-interest 
to  choose  the  better  and  reject  the  worse;  but  in  the 
case  of  money,  it  would  seem  as  if  they  paradoxically 
retain  the  worse  and  get  rid  of  the  better.  The  ex- 
planation is  very  simple.  The  people,  as  a  general  rule, 
do  not  reject  the  better,  but  pass  from  hand  to  hand 
indifferently  the  heavy  and  the  light  coins,  because  their 
only  use  for  the  coin  is  as  a  medium  of  exchange.  It  is 
those  who  are  going  to  melt,  export,  hoard,  or  dissolve 
the  coins  of  the  realm,  or  convert  them  into  jewellery 
and  gold  leaf,  who  carefully  select  for  their  purposes  the 
new  heavy  coins. 

Gresham's  law  alone  furnishes  a  sufficient  refutation 
of  Mr.  Herbert  Spencer's  doctrine,  already  noticed  (p.  64) 
that  money  ought  to  be  provided  by  private  manufac- 
turers. People  who  want  furniture,  or  books,  or  clothes, 
may  be  trusted  to  select  the  best  which  they  can  afford, 
because  they  are  going  to  keep  and  use  these  articles  ; 
but  with  money  it  is  just  the  opposite.  Money  is  made 
to  go.  They  want  coin,  not  to  keep  it  in  their  own 
pockets,  but  to  pass  it  off  into  their  neighbours'  pockets ; 
and  the  worse  the  money  which  they  can  get  their 
neighbours  to  accept,  the  greater  the  profit  to  them- 
selves. Thus  there  is  a  natural  tendency  to  the  depre- 
ciation of  the  metallic  currency,  which  can  only  be 
prevented  by  the  constant  supervision  of  the  state. 

From  Gresham's  law  we  may  infer  the  necessity  of 
two  precautions  in  the  regulation  of  the  currency.  In 
the  first  place,  the  standard  coins,  as  issued  from  the 
mint,  should  be  as  nearly  as  possible  of  the  standard 


THE    PRINCIPLES    OF    CIRCULATION.  83 

weight,  otherwise  the  difference  will  form  a  profit  for 
the  bullion-broker  and  exporter.  In  the  second  place, 
adequate  measures  must  be  taken  for  withdrawing  from 
circulation  aU  coins  which  are  worn  below  the  least 
legal  weight,  otherwise  they  will  continue  to  circulate 
as  token  coins  for  an  indefinite  length  of  time.  All 
commerce  consists  in  the  exchange  of  commodities  of 
equal  value,  and  the  principal  money  should  consist  of 
pieces  of  metal  so  nearly  equal  in  metallic  contents,  that 
all  persons,  including  bullion  dealers,  bankers,  and  other 
professed  dealers  in  money,  will  indifferently  substitute 
one  coin  for  another.  But  it  is  obvious  that  these 
remarks  do  not  apply  to  coins  intended  to  serve  as 
tokens,  since  the  current  value  of  tokens  exceeds  their 
metallic  value,  and  every  one  who  uses  them  otherwise 
than  in  ordinary  circulation  will  lose  the  difference. 
Hence  the  weight  of  a  token  coin  is  comparatively  a 
matter  of  indifference,  so  long  as  people  will  receive 
them,  and  the  deficiency  of  weight  is  not  too  great  a 
temptation  to  the  false  coiner. 

In  England  at  the  present  day  the  force  of  habit,  and 
the  absence  of  means  of  discrimination,  lead  to  the 
depreciation  of  our  gold  standard  coinage  by  abrasion. 
Only  while  a  sovereign  exceeds  122*5  grains  in  weight 
is  it  legally  a  sovereign ;  but  people  go  on  paying  and 
receiving  indifferently,  in  ordinary  trade,  sovereigns  of 
which  the  metallic  values  differ  2d.  or  4d.,  and  sometimes 
even  6d.  or  Sd.  Every  standard  coin  thus  tends  to 
degenerate  into  a  token  coin,  and  such  a  coin  can  only  ^ 
be  withdrawn  from  circulation  by  the  state. 


84  MONEY. 

Extension  of  Gresham's  Law. 

Gresham's  remarks  concerning  the  inability  of  good 
money  to  drive  out  bad  money,  only  referred  to  moneys 
of  one  kind  of  metal,  but  the  same  principle  applies  to 
the  relations  of  all  kinds  of  money,  in  the  same  circula- 
tion. Gold  compared  with  silver,  or  silver  with  copper, 
or  paper  compared  with  gold,  are  subject  to  the  same 
law  that  the  relatively  cheaper  medium  of  exchange  will 
be  retained  in  circulation  and  the  relatively  dearer  will 
disappear.  The  most  extreme  instance  which  has  ever 
occurred  was  in  the  case  of  the  Japanese  currency.  At 
the  time  of  the  treaty  of  1858,  between  Great  Britain,  the 
United  States,  and  Japan,  which  partially  opened  up  the 
last  country  to  European  traders,  a  very  curious  system  of 
currency  existed  in  Japan.  The  most  valuable  Japanese 
coin  was  the  kobang,  consisting  of  a  thin  oval  disc  of 
gold  about  2  inches  long,  and  1 J  inch  wide,  weighing  200 
grains,  and  ornamented  in  a  very  primitive  manner.  It 
was  passing  current  in  the  towns  of  Japan  for  four  silver 
itzebus,  but  was  worth  in  English  money  about  18s.  5cZ., 
whereas  the  silver  itzebu  was  equal  only  to  about  Is.  4d. 
Thus  the  Japanese  were  estimating  their  gold  money 
at  only  about  one-third  of  its  value,  as  estimated  ac- 
cording to  the  relative  values  of  the  metals  in  other 
parts  of  the  world.  The  earliest  European  traders 
enjoyed  a  rare  opportunity  for  making  profit.  By 
buying  up  the  kobangs  at  the  native  rating  they  trebled 
their  money,  until  the  natives,  perceiving  what  was  being 
done,  withdrew  from  circulation  the  remainder  of  the 


THE    PRINCIPLES    OF    CIRCULATION.  85 

gold.  A  complete  reform  of  the  Japanese  currency  is 
now  being  carried  out,  the  English  mint  at  Hong  Kong 
having  been  purchased  by  the  Japanese  government. 

What  happened  in  an  extreme  degree  in  Japan  has 
often  happened  in  England  and  other  European  countries, 
in  a  less  degree.  If  the  ratio  of  gold  and  silver  in  the  s 
coinage,  as  legally  current,  differs  only  one  or  two  per 
cent,  from  the  commercial  ratio,  it  may  become  profit- 
able to  export  the  one  metal  rather  than  the  other,  and 
in  this  way,  as  we  shall  see,  the  main  part  of  the  cur- 
rency of  France  was  changed  from  silver  into  gold 
between  1849  and  1869.  In  fact  the  character  of  the 
coinage  of  most  nations  has  been  determined  in  a 
similar  manner,  and  England  and  the  United  States 
were  thus  led  to  adopt  a  principal  gold  currency.  There 
is  every  reason  to  believe  that  in  ancient  Eome,  both 
in  the  time  of  the  Republic  and  of  the  Empire,  great 
difficulties  were  encountered  in  regulating  the  currency 
of  silver  alongside  of  copper,  and  the  perplexity  became 
worse  when  gold  coin  was  introduced. 


CHAPTER  IX. 

SYSTEMS  OF  METALLIC  MONEY. 

WE  are  now  in  a  position  to  analyse  the  construction 
of  the  various  systems  of  metallic  money  which  have 
existed,  or  do  exist,  or  which  might  be  conceived  to 
exist.  The  systems  actually  brought  into  operation  are 
more  numerous  than  is  commonly  supposed,  and  I  have 
nowhere  met  with  an  adequate  classification  of  them. 
M.  Courcelle-Seneuil,  indeed,  has  satisfactorily  described 
some  of  the  principal  systems,  and  MM.  Chevalier,  Gamier, 
and  other  writers,  both  continental  and  English,  have 
given  other  brief  classifications.  But  we  must  now  take 
a  comprehensive  view  of  the  possible  ways  in  which  two, 
three,  or  more  metals  may  be  employed  in  the  construc- 
tion of  a  more  or  less  useful  monetary  system. 

There  seem  to  be  five  distinct  modes  in  which  a 
government  may  deal  with  metallic  money. 

1.  It  may  confine  itself  to  providing  a  system  of 
weights  and  measures,  and  may  then  allow  the  precious 
metals  to  be  passed  about  from  hand  to  hand,  like  other 
commodities,  in  terms  of  the  national  weights  and  mea- 
sures, and  in  the  form  which  individuals  find  to  be  most 


SYSTEMS    OF    METALLIC    MONEY.  87 

convenient.     This  we  may  call  the  system  of  currency 
by  weight. 

2.  To   save  the  trouble   of   frequent  weighing,  and 
the  uncertainty  of  fineness  of  the  metal,  it  may  coin 
one  or  more  metals  into  pieces  of  certain  specified  weights 
and  fineness,  and  may  afterwards  allow  the  public  to 
make  their  contracts  and  sales  in  one  or  other  kind  of 
coin,  as  they  deem  expedient.     This  may  be  described  as 
the  system  of  unrestricted  currency  by  tale. 

3.  To  prevent  misunderstandings,  the  government, 
while   emitting  various   coins   in  various   metals,   may 
ordain  that  all  contracts  expressed  in  money  of  the  realm 
shall,  in  the  absence  of  express  provision  to  the  contrary, 
be  taken  to  mean  money  of  one  kind  of  metal,  specially 
named,  while  other  coin  shall  be  left  to  circulate  at  vary- 
ing market  rates  compared  with  this  principal  kind  of 
coinage.     This  is  the  single  legal  tender  system. 

4.  The  government  may  emit  coins  of  two  or  more 
kinds  of  metal,  and  enact  that  money  contracts  may  be 
discharged  in  one  or  other  kind,  at  certain  rates  fixed 
by  law.     This  is  the  multiple  legal  tender  system. 

5.  While  maintaining  one  kind  of  coin  as  the  principal 
legal  tender,  in  which  all  large  money  contracts  must  be 
fulfilled,  coins  of  other  kinds  of  metal  may  be  ordered 
to  be  received  in  limited  quantities,  as  equivalent  to  the 
principal  coin.     For  this  the  name  composite  legal  tender 
system  may  be  proposed. 


88  MONEY. 

Currency  by  Weight. 

The  order  in  which  I  have  enumerated  the  principal 
systems  of  metallic  money,  is  not  only  the  logical  order, 
but  it  is  the  historical  order  in  which  the  systems  have, 
for  the  most  part,  been  introduced.  There  is  over- 
whelming evidence  to  prove  that  simple  currency  by 
weight  is  the  primitive  system.  Before  the  invention  of 
the  balance,  lumps  and  grains  were  no  doubt  exchanged 
according  to  a  rude  estimation  of  their  bulk  or  weight ; 
but  afterwards  the  balance  became  a  necessary  instrument 
in  all  important  transactions.  In  the  Old  Testament  we 
find,  several  statements  clearly  implying  that  the  ancient 
Hebrews  used  to  pass  money  by  weight.  In  Genesis 
(xxiii.  16)  Abraham  is  represented  as  weighing  out  to 
Ephron  "  four  hundred  shekels  of  silver,  current  money 
with  the  merchant,"  but  the  silver  in  question  is  believed 
to  have  consisted  of  rough  lumps  or  rings  not  to  be  con- 
sidered coin.  In  the  Book  of  Job  (xxviii.  15)  we  are 
told  that  "wisdom  cannot  be  gotten  for  gold,  neither 
shall  silver  be  weighed  for  the  price  thereof." 

Aristotle,  in  his  Politics  (Book  I.,  chap,  ix),  gives  an 
interesting  account  of  his  view  of  the  origin  of  money, 
and  distinctly  tells  us  that  the  metals  were  first  passed 
simply  by  weight  or  size,  and  Pliny  makes  a  similar 
assertion.  That  it  was  so,  we  may  infer  from  the  re- 
markable fact  that,  even  when  no  use  was  made  of  it,  the 
custom  of  bringing  a  pair  of  scales  survived  as  a  legal 
formality  in  the  sale  of  slaves  at  Kome. 

There  can  be  little  doubt  that  every  system  of  coin- 


SYSTEMS   OF   METALLIC   MONEY.  89 

age  was  originally  identical  with  a  system  of  weights, 
the  unit  of  value  being  the  unit  of  weight  of  some 
selected  metal.  The  English  pound  sterling  was  cer- 
tainly the  Saxon  pound  of  standard  silver,  which  was 
too  large  to  be  made  into  a  single  coin,  but  was 
divided  into  two  hundred  and  forty  silver  pennies,  each 
equal  to  a  pennyweight.  In  the  English  and  Scotch 
pounds,  and  the  French  livre,  we  have  the  vestiges  of  a 
uniform  international  system  of  money  and  weights,  the 
establishment  of  which  is  attributed  to  Charlemagne, 
but  which  unfortunately  became  differentiated  andr. de- 
stroyed by  the  various  depreciations  of  the  coinage  in 
one  country  or  another.  Most  of  the  other  principal 
units  of  value  were  originally  units  of  weight,  such  as 
the  shekel,  the  talent,  the  as,  the  stater,  the  libra,  the 
mark,  the  franc,  the  lira. 

In  the  Old  Testament  the  notion  of  money  is  expressed 
three  times  by  the  Hebrew  word  kesitah,  which  is  trans- 
lated in  certain  old  versions  into  words  meaning  lamb.  This 
might  seem  to  be  an  additional  proof  of  the  former  use  of 
cattle  as  a  medium  of  exchange  ;  but  I  am  informed  by  my 
learned  friend,  Professor  Theodores,  that  this  translation 
probably  arises  from  an  accidental  blunder,  and  that  the 
original  meaning  of  the  word  kesitah,  was  that  of  "  a 
certain  weight,"  or  "an  exact  quantity."  The  corres- 
ponding word  in  the  Arabic,  kist,  is  said  to-  denote  a 
pair  of  scales. 

Currency  by  weight  still  exists  among  considerable 
portions  of  the  human  race.  In  the  Burman  empire, 
for  instance,  three  kinds  of  metal  are  current,  namely, 


90  MONEY. 

lead,  silver,  and  gold,  and  all  payments  are  made  by  the 
balance,  the  unit  of  weight  for  silver  being  the  tical. 
In  the  Chinese  empire  and  Cochin  China,  there  is  in- 
deed a  legal  tender  currency  of  cash  or  sapeks  but  gold 
and  silver  are  usually  dealt  in  by  weight,  the  unit  being 
the  tael.  A  very  interesting  account  of  Chinese  money, 
by  M.  le  Comte  Eochechouart,  will  be  found  in  the  Jour- 
nal des  Economistes  for  1869  (vol.  xv.  p.  103).  According 
to  this  writer,  both  gold  and  silver  are  treated  simply  as 
merchandise,  and  there  is  not  even  a  recognized  stamp, 
or  government  guarantee  of  the  fineness  of  the  metal. 
The  traveller  must  carry  these  metals  with  him,  as  a 
sufficient  quantity  of  strings  of  cash  would  require 
a  waggon  for  their  conveyance.  Yet  in  exchanging  silver 
or  gold  he  is  sure  to  suffer  great  losses,  both  from  the 
falsity  of  balances  and  weights,  and  the  uncertain 
fineness  of  the  metal.  In  buying  a  tael  of  gold  the 
traveller  may  have  to  give  eighteen  taels  of  silver ;  but 
in  selling  it  he  will  often  not  obtain  more  than  fourteen 
taels. 

Whatever  be  the  inconveniences  of  the  method, 
currency  by  weight  is  yet  the  natural  and  necessary 
system  to  which  people  revert  whenever  the  abrasion 
of  coins,  the  intermixture  of  currencies,  the  fall  of  a 
state,  or  other  causes  destroy  the  public  confidence  in 
a  more  highly  organized  system.  Though  the  silver 
penny  among  the  Anglo-Saxons  was  supposed  to  corres- 
pond with  a  penny  weiajit,  there  was  a  practice  of  giving 
compensatio  ad  pensum,  which  really  amounted  to  taking 
the  coins  by  weight,  to  allow  for  abrasion  and  inaccurate 


SYSTEMS    OF    METALLIC    MONEY.  91 

or  false  coinage.  The  as  was  at  first  equal  in  weight 
to  a  Roman  pound,  but  it  was  rapidly  lessened,  so  that 
at  the  epoch  of  the  First  Punic  War,  it  did  not  exceed 
two  ounces,  and  by  the  time  of  the  Second  Punic  War  it 
had  sunk  to  one  ounce.  The  Koman  people  had  natur- 
ally reverted  to  weighing  the  metal,  and  the  aes  grave 
was  money  reckoned  by  weight  instead  of  by  tale. 

In  the  present  day  currency  by  weight  is  far  more 
extensively  practised  then  might  be  supposed,  because, 
in  many  parts  of  the  world,  the  currency  consists  of  a 
miscellaneous  assortment  of  old  gold,  silver,  and  even 
copper  coins,  which  have  been  brought  thither  from 
other  countries,  and  have  been  variously  worn,  clipped, 
or  depreciated.  In  such  countries  the  only  means  of 
avoiding  loss  and  fraud  is  to  weigh  each  coin,  and  the 
impress  passes  for  little  more  than  an  indication  of  the 
fineness  of  the  metals.  In  all  large  international  trans- 
actions, again,  currency  by  weight  is  the  sole  method. 
The  regulations  of  a  state  concerning  its  legal  tender 
have  no  validity  beyond  its  own  frontiers;  and  as  all 
coins  are  subject  to  more  or  less  wear  and  uncertainty 
of  weight,  they  are  received  only  for  the  actual  weight  of 
metal  they  are  estimated  to  contain.  The  coin  of  well- 
conducted  foreign  mints  is  bought  and  sold  by  weight 
without  melting;  but  the  coin  of  minor  states,  which 
have  occasionally  depreciated  their  money,  is  melted  up 
and  treated  simply  as  bullion. 


92  MONEY. 

Unrestricted  Currency  ly  Tale. 

The  simplest  way  for  a  state  to  manage  its  money 
might  seem  to  be  to  revert  to  the  primitive  notion  of  a 
coin,  and  issue  pieces  of  gold,  silver,  and  copper,  certified 
to  be  equal  to  units  of  weight,  leaving  all  persons  free  to 
make  contracts  or  sales  in  terms  of  any  of  these  metals. 
These  pieces  of  certified  metal  would  then  be  so  many 
commodities  thrown  into  the  markets  and  allowed  to 
take  their  natural  relative  values. 

Such  appears  to  have  been  the  system  intended  to  be 
established  by  the  French  Eevolutionary  Government  in 
terms  of  the  abortive  law  of  Thermidor,  an  III.  Discs 
of  ten  grams  each  were  to  be  struck  in  gold,  silver,  and 
copper,  and  then  put  in  circulation,  without  any  attempt 
to  regulate  their  currency.  If  I  understand  his  meaning 
correctly,  M.  Gamier  has  recently  brought  forward  a 
somewhat  similar  scheme,  proposing  to  make  the  gram 
of  gold  at  nine-tenths  the  unit  of  value,  and  to  coin  pieces 
of  one,  two,  five,  eight,  or  ten  grams  concurrently  with 
standard  silver  pieces,  which  are  in  France  already 
multiples  of  the  gram.  M.  Chevalier's  proposed  system 
of  international  money,  partially  at  least,  involves  the 
same  notion ;  for  he  considers  that  the  principal  cur- 
rency should  consist  of  decagrams  of  gold.  But,  as 
Mr.  Bagehot  has  well  remarked,  there  is  no  object 
whatever,  as  regards  the  greater  mass  of  the  population, 
in  having  coins  simply  related  to  the  system  of  weights, 
because  most  people  never  need  take  any  account  of  the 
weight  at  all.  They  need  only  know  how  many  copper 


SYSTEMS    OF    METALLIC    MONEY.  93 

coins  are  equal  to  one  silver  coin,  and  how  many  silver 
to  one  gold  coin.  Now,  if  we  carry  out  M.  Chevalier's 
scheme  consistently  and  fully,  and  make  all  the  coins 
multiples  of  the  gram,  we  shall  oblige  all  people  to  be 
constantly  working  complex  arithmetical  sums.  No  one 
could  give  exactly  correct  change  without  calculating 
how  many  silver  ten-gram  pieces  are,  at  the  market 
price  of  silver,  equal  to  one  gold  ten-gram  piece.  The 
necessity  for  calculation  occasions  needless  loss  of  time 
and  trouble,  and  a  factitious  gain  is  sure  to  accrue  to  the 
expert  and  unscrupulous  at  the  expense  of  the  poor  and 
ignorant. 

Owing  to  these  obvious  objections  no  government  has 
ever,  I  believe,  carried  into  practice  a  system  of  money 
of  the  kind  described.  Nevertheless,  currencies  approxi- 
mating to  it  in  nature  have  come  to  exist  in  many  parts 
of  the  world  by  the  intermixture  of  coinages  of  different 
states.  There  are  many  half-civilized  nations  which 
have  no  national  coinage,  but  employ  the  coins  which 
happen  to  reach  them  in  the  course  of  trade.  On  the 
West  Coast  of  Africa  the  Spanish  dollar  is  the  best 
known  coin,  but  Danish,  French  or  Dutch  coins  also 
circulate.  In  several  of  the  South  American  states 
the  currency  is  in  a  state  of  complete  confusion,  con- 
sisting of  a  mixture  of  American  eagles,  gold  doubloons, 
silver  dollars,  English  sovereigns,  piastres,  etc.,  together 
sometimes  with  several  different  issues  of  coinage  of  the 
South  American  states  variously  depreciated.  Even  in 
British  possessions  we  find  the  same  state  of  things.  In 
the  British  West  Indian  Islands,  American,  Mexican, 


94  MONEY. 

Spanish,  and  other  dollars,  circulate  concurrently  with 
English  money;  but  it  should  be  added  that  in  most 
cases  the  Spanish  dollar  is  treated  as  the  standard  of 
value,  and  other  coins  are  quoted  in  terms  of  it. 

In  Eastern  countries  there  is  a  similar  intermixture 
of  coinage.  In  Singapore  the  Indian  rupee  mingles  with 
Spanish  and  Mexican  dollars.  Persia  has  a  rude  coinage 
of  its  own,  so  uncertain  in  weight  that  it  has  to  be  dealt 
in  by  the  balance,  but  Kussian,  Turkish,  and  Austrian 
gold  coins  circulate  by  tale.  Some  of  the  best-regulated 
nations  have  allowed,  or-  even  promoted,  the  currency 
of  various  foreign  coins.  In  Germany,  French  and 
English  gold  coins  used  to  be  accepted,  according  to 
a  well-recognised  tariff.  The  circulation  of  English, 
French,  Spanish,  Mexican,  and  other  gold  coins  in 
the  United  States  was  legalized  by  an  Act  of  June  28th, 
1834,  repealed  by  an  Act  of  February  21st,  1857,  which 
however  allows  certain  foreign  coins  to  be  received  at 
government  offices. 

In  England  we  have  for  many  generations  enjoyed  a 
very  pure  currency,  so  that  we  are  unconscious  of  the 
inconveniences  arising  from  a  confusion  of  coins  of 
different  values.  But  in  the  early  part  of  this  century 
Spanish  dollars  were  put  into  circulation  for  a  time  in 
England. 

In  former  centuries  the  mixture  of  coinages  was  far 
more  common  than  at  present.  No  country  had  a 
currency  free  from  strange  coins.  It  is  impossible  to 
open  an  old  book  on  commerce  without  finding  long 
tables  of  coins  which  the  merchant  might  expect  to  meet 


SYSTEMS    OF    METALLIC    MONEY.  95 

with ;    and    the    business    of    money-changing  was    a 
lucrative  and  common  one. 

It  will  be  understood,  that  only  so  long  as  coins  are 
known  by  the  fresh  sharp  appearance  of  the  impression 
to  be  of  full  weight,  and  are  accepted  according  to  tariff, 
does  the  system  of  currency  by  tale  or  number  exist. 
The  silver  dollar,  being  a  large  coin,  is  subject  to  com- 
paratively little  abrasion,  so  that  people  learn  to  receive 
dollars  of  various  species  at  certain  well-established  rates. 
Thus  the  dollar  has  practically  been  for  several  centuries 
the  international  money  of  the  tropical  countries.  But 
BO  soon  as  coins  bear  evidence  of  wear  or  ill-treatment, 
they  must  be  circulated  by  weight,  and  we  revert  to  a 
more  primitive  system. 

M.  Feer-Herzog  has  described,  as  the  system  of 
parallel  standards,  that  in  which  a  state  issues  coins 
in  two  or  more  metals,  and  then  allows  them  to  circulate 
by  tale  at  ratios  varying  according  to  the  market  values 
of  the  metals.  He  cites,  as  recent  examples,  the  rixdaler 
in  silver,  employed  as  the  internal  money  of  Sweden  in 
combination  with  the  ducat  in  gold,  serving  as  inter- 
national money.  The  government  of  India,  again,  has 
on  several  occasions  tried  to  introduce  a  parallel  standard 
of  gold  alongside  of  the  single  silver  legal  tender  now 
existing  there.  Gold  mohurs  have  long  been  more  or 
less  in  circulation  in  India,  and  are  supposed  to  form  at 
present  about  one-tenth  part  of  the  coinage.  They  are 
of  exactly  the  same  weight  and  fineness  as  the  silver 
rupee,  and  are  usually  valued  at  from  15  to  15f  rupees. 
It  seems  probable,  however,  that  what  M.  Feer-Herzog 


96  MONEY. 

calls  the  system  of  parallel  standards  will  coincide 
according  to  circumstances,  either  with  that  which  I 
have  described  as  the  system  of  unrestricted  currency 
by  tale,  or  that  of  a  single  legal  tender,  with  an  additional 
commercial  money  of  varying  value.  The  Indian  currency 
must  certainly  be  classed  under  the  latter  head.  There 
cannot  in  fact  be  two  different  parallel  standards  used 
both  at  the  same  time ;  and  though  it  is  not  uncommon 
for  a  state  to  coin  moneys  in  two  metals,  and  leave  its 
subjects  to  pay  in  one  or  other  at  will,  yet  one  of  the  two 
is  generally  recognized  as  the  standard  of  value. 

Single  Legal  Tender  System. 

The  system  of  currency  naturally  adopted  by  the  first 
coiners  of  money  was  that  of  a  single  legal  tender. 
Coins  of  one  kind  of  metal,  or  even  a  single  series  of 
coins  of  uniform  weight,  were  at  first  thought  sufficient. 
Iron  in  small  bars  was  the  single  legal  tender  in 
Lacedsemon,  and  possibly  in  some  other  early  states. 
Aes  was  undoubtedly  the  legal  tender  among  the 
Eomans  for  a  length  of  time.  In  China  the  sole  mea- 
sure of  value  and  legal  tender  to  the  present  day 
consists  of  brass  cash  or  sapeks,  strung  together  in  lots 
of  a  thousand  each.  In  England  silver  was  the  only 
metal  coined  from  the  time  of  Egbert  to  that  of 
Edward  III.,  with  the  doubtful  exception  of  a  very  few 
small  pieces  of  gold.  Silver  was  the  sole  legal  tender 
and  measure  of  value,  and  few  coins  except  silver  pennies 
were  issued.  In  Kussia  and  Sweden,  during  part  of  last 
century,  copper  was  the  sole  legal  tender. 


SYSTEMS    OF   METALLIC   MONEY.  97 

A  single  metal  currency  has  the  great  advantages  of 
simplicity  and  certainty.  Every  one  knows  exactly  what 
he  is  to  pay  or  receive,  and  when  the  coins  are  of  one 
size  or  of  a  few  sizes,  simply  related  to  each  other,  like 
the  early  English  coins,  no  one  is  subject  to  loss  by 
errors  of  calculation.  But  there  is  the  obvious  disad- 
vantage that,  according  as  the  metal  chosen  is  cheap  or 
dear,  large  or  small  transactions  will  be  troublesome  to 
effect.  To  pay  a  few  hundred  pounds  in  Swedish  copper 
plates,  or  Chinese  strings  of  cash,  a  cart  would  be  required 
for'  conveyance,  and  the  counting  of  cash  is  almost 
impracticable.  A  silver  coinage  again  does  not  admit 
of  coins  sufficiently  small  for  minor  transactions.  It  is 
difficult  to  understand  how  retail  trade  was  carried 
on  when  the  silver  penny  weighed  22  J  grains,  and 
the  precious  metals  were  far  more  precious  than  at 
present.  -  The  penny  was,  indeed,  cut  up  into  halfpence 
and  farthings,  i.e.  four-things;  but  even  the  farthing 
must  have  been  equal  in  purchasing  power  to  our  three- 
penny or  fourpenny  piece.  The  mass  t>f  the  currency 
appears  to  have  consisted  of  silver  pennies. 

Accordingly  it  is  found  that,  if  a  government  issue 
coins  only  of  a  single  metal,  the  people  will  introduce 
and  circulate  coins  of  other  metals  for  their  own  con- 
venience. In  Anglo-Saxon  times  gold  byzants  from 
Byzantium  were  used  in  England,  and  the  gold  coins  of 
Florence,  thence  called  florins,  were  much  esteemed 
both  here  and  in  other  parts  of  Europe.  In  later  cen- 
turies, too,  in  the  absence  of  a  legitimate  copper  coinage, 
tradesmen's  tokens  came  into  general  circulation. 


98  MONEY- 

Multiple  Legal  Tender  System. 

Out  of  a  single  legal  tender  naturally  grew  up  systems 
of  a  double  or  even  a  multiple  legal  tender.  The 
Plantagenet  kings  of  England,  for  instance,  finding  that 
though  they  coined  only  silver  the  people  made  use  of 
gold,  eventually  began  to  issue  gold  coins,  and  fixed  the 
rates  at  which  they  should  be  exchanged  for  silver  coins. 
In  the  absence  of  any  special  regulations  to  the  contrary 
this  constituted  a  double  tender  system.  As,  after  a  time, 
the  ratio  of  values  of  the  metals  would  fail  to  coincide 
with  that  involved  in  the  relative  weights  of  the  coins, 
it  became  requisite  to  fix  by  royal  proclamation  a  new 
value  for  one  metal  in  terms  of  the  other.  From  1257 
to  1664  the  gold  and  silver  currency  of  England  was 
thus  regulated,  no  coins  of  copper  or  any  inferior  metal 
being  then  issued.  From  1664  to  1717  no  proclama- 
tions were  made  upon  the  subject,  and  the  value  of  the 
guinea  was  allowed  to  vary  in  terms  of  the  shilling. 
At  one  time  it  rose  nearly  to  305.,  owing  partly  to  the 
decreased  value  of  silver,  but  chiefly  to  the  clipped  and 
worn  state  of  the  silver  money.  During  this  interval, 
then,  the  country  had  a  single  silver  standard. 

In  the  early  part  of  the  last  century  a  great  deal  of 
discussion  took  place  upon  the  unsatisfactory  state  of 
the  silver  currency,  and  Sir  Isaac  Newton,  the  Mastei 
of  the  Mint,  was  requested  to  report  upon  the  best 
measures  to  be  adopted.  In  1717  he  made  a  celebrated 
report,  recommending  that  the  government  should  revert 
to  the  practice  of  fixing  the  price  of  the  guinea,  and  he 


SYSTEMS    OF    METALLIC    MONEY.  99 

suggested  21s.  as  the  best  rate.  His  advice  being 
accepted,  the  guinea  has  ever  since  been  valued  at  21s. 
Then  there  was  again  a  double  standard  in  England, 
any  one  being  at  liberty  to  pay  in  either  kind  of  coin. 
In  practice,  however,  it  is  almost  impossible  that  the 
commercial  value  of  the  metals  should  coincide  with  the 
legal  ratio.  At  the  rate  adopted  by  Sir  Isaac  Newton, 
gold  was  overvalued  by  rather  more  than  1 J  per  cent. ; 
to  that  extent  it  was  more  valuable  as  currency  than  as 
metal.  Therefore,  in  accordance  with  the  Law  of 
Gresham,  and  the  principles  laid  down  in  Chapter  VIII., 
the  full  weight  silver  coin  was  withdrawn  or  exported, 
and  gold  became  the  practical  measure  of  value,  which  it 
has  ever  since  continued  to  be. 

In  every  other  part  of  the  world,  where  attempts 
have  been  made  to  combine  two  metals  as  concurrent 
standards  of  value,  similar  results  have  followed.  In 
Massachusetts,  in  1762,  gold  was  made  a  legal  tender,  as 
well  as  silver,  at  the  rate  of  2Jd.  per  grain;  but,  being  over- 
valued as  much  as  5  per  cent,  the  silver  coinage  rapidly 
disappeared  from  circulation.  Various  laws  were  passed 
to  remedy  this  inconvenient  state  of  things,  but  without 
success  so  long  as  this  valuation  of  gold  was  maintained. 

In  these  and  many  other  cases  which  might  be 
quoted,  a  government  had  attempted  to  combine  a 
circulation  of  gold  with  that  of  silver,  without  bein£ 
aware  of  all  the  principles  involved  in  the  experiment, 
It  was  hardly,  perhaps,  till  the  time  of  the  French 
Eevolution  that  the  double  standard  system  was  con- 
sciously selected  as  the  best  method.  Since  the  cele- 


100  MONEY. 

brated  law,  known  as  "La  loi  du  7  Germinal,  an  XI.,"  was 
adopted  by  the  Bevolutionary  Government,  the  system 
has  become  identified  with  the  policy  of  the  French 
economists.  The  history  of  the  origin  of  this  law  was 
almost  unknown,  until  M.  Wolowski  described  it  in  a 
series  of  valuable  articles  published  in  the  Journal  des 
Economistes  for  1869. 

As  early  as  1790  Mirabeau  presented  to  the  National 
Assembly  a  celebrated  memoir  on  monetary  doctrines, 
in  which,  amid  a  curious  mixture  of  true  and  false  views, 
he  decided  in  favour  of  silver  as  the  principal  money, 
on  the  ground  of  the  greater  abundance  of  silver  com- 
pared with  gold.  He  proposed  to  make  silver  the  con- 
stitutional money,  that  is,  the  legal  tender,  and  to  employ 
gold  and  copper  as  additional  signs  of  value.  These 
ideas  were  only  so  far  carried  out  that  the  franc  was 
denned  first  as  ten  grams  of  silver  by  the  decree  of  the 
1st  August,  1793,  and  was  afterwards  definitively  fixed 
at  five  grams  by  the  law  of  the  28th  Thermidor,  an  III. 
The  old  gold  pieces  of  twenty-four  and  forty-eight  livres 
continued  to  circulate,  while  the  ten-gram  gold  pieces 
ordered  by  the  decree  to  be  struck  were  not  really  issued. 

In  the  year  IX.  Gaudin  proposed  that  the  ratio  oi 
15 1  to  1  should  be  adopted  in  fixing  the  weight  of  the 
gold  coins  relatively  to  the  silver  ones.  Thus,  while  the 
franc  was  defined  as  consisting  of  five  grams  of  silver  nine- 
tenths  fine,  the  twenty-franc  gold  piece  was  to  contain 
6'451  grams  of  gold  of  equal  fineness.  He  seems  to  have 
thought  that  this  ratio  was  sufficiently  near  to  that  of 
the  markets  to  allow  the  coins  to  circulate  side  by  side 


SYSTEMS    OF    METALLIC   'HONE1?      V   1          ''*H)1 

for  a  long  time,  and  in  case  01- a-  change,  W  tfhdu'glit' 
that  the  gold  pieces  could  be  melted  and  reissued  at  a 
different  weight.  After  a  great  amount  of  discussion, 
in  which  Berenger,  Lebreton,  Daru,  and  Bosc  took  the 
most  prominent  parts,  the  proposals  of  Gaudin  were 
carried  out,  but  not  precisely  on  the  ground  indicated 
by  him.  It  appears  to  have  been  thought  unwise  either 
to  demonetize  gold  altogether,  which  would  have 
seriously  diminished  the  circulating  medium,  or  to  leave 
the  value  of  the  gold  coins  uncertain,  which  would  give 
rise  to  disputes. 

The  ratio  adopted  by  the  legislators  of  the  Bevolu- 
tion  happened  to  overvalue  silver  in  some  degree,  and 
hence  the  currency  of  France  came  to  consist  principally 
of  the  heavy  five-francs  pieces,  or  ecus.  Not  until  the 
Californian  and  Australian  discoveries  caused  gold  to  be 
the  cheaper  money  in  which  to  make  payments,  did  this 
heavy  silver  money  gradually  disappear.  The  action 
of  the  double  standard  system  will  be  further  considered 
in  Chapter  XII. 

Composite  Legal  Tender. 

We  have  seen  that  with  a  single  metal  currency  there 
is  inconvenience  in  making  small  or  large  payments, 
according  as  the  metal  chosen  is  dear  or  cheap.  If 
two  or  more  series  of  full-weight  coins  be  issued  in 
different  metals,  and  allowed  to  vary  in  relation  to 
each  other,  the  difficulty  of  calculation  intervenes.  If 
they  both  be  made  legal  tenders  at  a  fixed  ratio,  the 
currency  will  tend  to  become  composed  alternately  of 


102 


MONEY. 


one  -or  •  the  'ctha-i*  metaf,  and  money-changers  will  make 
a  profit  out  of  the  conversion. 

There  yet  remains  another  possible  system,  in  which 
coins  of  one  metal  are  adopted  as  the  standard  of  value 
and  principal  legal  tender,  and  subordinate  token  coins 
of  other  metals  are  furnished  for  the  purpose  of  sub- 
division, being  recognized  as  legal  tender  only  for  small 
amounts.  The  values  of  these  token  coins  now  depend 
upon  that  of  the  standard  coins  for  which  they  are 
legally  exchangeable,  and  care  is  taken  to  make  their 
weights  such  that  the  metallic  value  will  always  be  less 
than  the  legal  value.  No  profit  can  ever  be  made  by 
melting  such  coins,  or  removing  them  from  the  country, 
and  their  ratio  of  exchange  with  the  principal  coins  is 
always  a  simple  ratio  fixed  by  law. 

The  composite  legal  tender  rises  naturally  out  of  the 
double  standard  system ;  for,  as  we  have  seen,  if,  under 
the  latter  system,  gold  be  overvalued  at  the  legal  rate, 
all  full-weight  silver  coins  will  be  withdrawn  and  ex- 
ported by  degrees,  so  that  there  will  remain  practically 
a  token  currency  of  light  silver.  Lord  Liverpool,  having 
in  his  thorough  investigation  of  the  subject  of  metallic 
money  observed  the  superior  convenience  of  the  composite 
legal  tender  to  the  double  legal  tender,  advocated  its 
adoption  in  England  in  the  most  conclusive  manner. 
His  arguments  will  be  found  in  his  admirable  "  Treatise 
on  the  Coins  of  the  Eealm  in  a  Letter  to  the  King" 
(Oxford,  1805),  and  his  recommendations,  as  carried  into 
effect  in  1816,  are  the  foundation  of  our  present  mone- 
tary system. 


SYSTEMS    OF    METALLIC    MONEY.  103 

A  composite  system  of  currency  has  frequently 
existed  in  one  country  or  another  without  being  specially 
designed  or  recognized.  It  comes  into  existence  when- 
ever coins  of  gold  and  silver  are  current  at  rates  fixed 
by  law  or  custom,  but  the  silver  coins  are  reduced  by 
abrasion  or  clipping  below  the  corresponding  weight. 
From  the  year  1717,  when  the  guinea  was  fixed  at 
21s.,  until  the  present  system  was  instituted  in  1816, 
the  English  currency  was  based  theoretically  upon  the 
double  standard  system.  Practically,  however,  the  silver 
coins  were  so  scarce  and  worn  that  they  served  but  as 
tokens,  The  tradesmen's  copper  tokens,  too,  being 
always  of  light  weight,  and  exchangeable  by  custom  for 
a  certain  proportion  of  silver  coins,  formed  the  third 
term  in  the  series.  But  Lord  Liverpool  appears  to  have 
been  the  first  to  apprehend  and  explain  the  principles 
on  which  such  a  composite  system  worked,  and  there 
can  be  no  doubt  that  the  system,  as  he  expounded  it, 
is  the  best  adapted  for  supplying  a  convenient  and 
economical  currency. 

Most  of  the  leading  nations  have  now  adopted  the 
composite  legal  tender  in  a  more  or  less  complete  form. 
.Prance,  Belgium,  Switzerland,  and  Italy  still  adhere  to 
the  double  standard  in  theory,  but  have  reduced  all  coins 
of  less  value  than  five  francs  to  the  footing  of  token" 
money,  by  reducing  the  fineness  of  the  silver  from  900 
parts  to  835  parts  in  1000,  or  by  7J  per  cent.,  and  by 
limiting  the  amount  for  which  they  are  legal  tender. 
The  copper  money  of  France  had  previously  been  re- 
stricted as  a  legal  tender  to  sums  below  five  francs  in 


104  MONEY. 

any  one  payment.  In  the  United  States,  when  metallic 
currency  was  generally  employed,  the  double  standard 
system  existed  in  theory,  but  was  reduced  to  a  compo- 
site standard  by  the  excessive  overvaluing  of  the  gold 
money.  Moreover,  by  a  law  of  21st  February,  1853,  the 
smaller  silver  coins  were  reduced  in  weight  and  made 
legal  tender  only  for  sums  not  exceeding  five  dollars.  The 
silver  three-cent  pieces,  and  the  several  copper,  bronze, 
lor  nickel  coins,  issued  from  the  United  States*  mints, 
were  also  token  money  with  various  limits  as  regards 
_egal  tender. 

The  new  German  monetary  system  is  perfectly  or- 
ganized as  a  composite  legal  tender. 


CHAPTEE  X. 

THE  ENGLISH  SYSTEM  OF  METALLIC  CURRENCY. 

i  NOW  come  to  describe  in  more  detail  the  system  oi 
metallic  currency  which  has  existed  in  England  for  more 
than  half  a  century,  and  which  seems  to  he  the  best  of 
all  as  regards  the  principles  on  which  coins  of  three  dif- 
ferent metals  are  combined  into  a  composite  legal  tender. 
The  legal  regulations  under  which  the  English  coinage 
is  issued  and  circulated,  can  be  ascertained  with  ease  and 
certainty,  thanks  to  the  Act  of  Parliament  (33  Victoria, 
ch.  10),  which  Mr.  Lowe  caused  to  be  passed  to  simplify 
and  consolidate  the  statutes  on  the  subject. 

English  Gold  Coin. 

The  English  sovereign  is  the  principal  legal  tender 
and  the  standard  of  value.  It  is  defined  as  consisting 
of  123-27447  grains  (7'98805  grams)  of  English  standard 
gold,  composed  of  eleven  parts  of  fine  gold,  and  one  part 
of  alloy,  chiefly  copper.  The  sovereign  ought,  there- 
fore, in  theory,  to  contain  113'00160  grains,  or  7*32238 
grams,  of  pure  gold.  But  as  it  is  evidently  impossible  to 


106  MONEY. 

make  coins  of  any  precise  weight,  or  to  maintain  them 
of  that  weight  when  in  circulation,  the  weight  stated  is 
only  that  standard  weight  to  which  the  mint  workmen 
should  aim  to  attain  as  closely  as  possible,  both  in  each 
individual  piece,  and  in  the  average. 

From  the  weight  of  the  sovereign  we  deduce  the  mint 
price  of  gold.  For  if  we  divide  the  number  of  grains  in 
the  sovereign  into  the  number  of  grains — namely,  480 — in 
the  troy  ounce,  we  ascertain  exactly  how  many  sovereigns 
and  portions  of  a  sovereign  the  mint  ought  to  return  for 
each  ounce  delivered  in.  This  we  find  to  be  3*89375, 
which  is  equivalent  to  £3  17s.  10 \d.  It  comes  to  exactly 
the  same  thing  to  say  in  terms  of  the  old  mint  inden- 
tures, that  twenty-pounds'  weight  troy  of  gold  are  to  be 
coined  into  934  sovereigns,  and  one  half-sovereign.  I 
have  heard  of  people  who  protested  against  the  govern- 
ment fixing  the  price  at  which  gold  should  be  bought  and 
sold  by  the  mint,  and  who  yet  allowed  that  the  sovereign 
must  have  some  fixed  weight.  But  the  fixed  price  is 
convertible  with  the  fixed  weight,  and  vice  versa.  Either 
follows  from  the  other. 

In  practice  the  weight  of  a  coin  is  always  a  matter  of 
limits,  and  there  must  be  limits  both  for  the  weight  as 
sent  out  and  that  at  which  it  can  legally  remain  in  circu- 
lation. The  remedy  is  the  technical  name  for  the  allowance 
made  to  the  mint-master  for  imperfection  of  workman- 
ship, and  is  defined  by  the  Act  as  two-tenths  of  a  grain 
(0-01296  gram).  Thus  the  mint  cannot  legally  issue  a 
sovereign  weighing  less  than  123 '074  grains,  or  more  than 
123*474  grains.  Since  the  fineness  of  the  gold,  again, 


THE    ENGLISH    SYSTEM    OF    METALLIC    CURRENCY.       107 

can  never  be  adjusted  exactly  to  the  standard  of  eleven 
parts  in  twelve,  or  91 6' 66  in  a  1000,  a  remedy  of  two 
parts  in  1000  is  allowed  in  this  respect.  It  is  understood 
that  the  English  mint  succeeds  in  working  well  within 
the  remedy  both  of  weight  and  fineness. 

Every  sovereign  issued  from  the  mint  in  accordance 
with  these  regulations,  and  bearing  the  impress  authorized 
by  the  Queen,  is  legal  tender,  and  must  be  accepted  by  a 
creditor  in  discharge  of  a  debt  to  that  amount,  provided 
that  it  has  not  been  reduced  by  wear  or  ill-treatment 
below  the  weight  of  122*50  grains  (7*93787  grams).  If 
a  sovereign  of  less  than  this  least  current  weight  be  ten- 
dered to  any  person,  he  is  presumed  by  the  law  to  detect 
the  deficiency,  and  is  bound  to  cut  or  deface  the  coin,  and 
return  it  to  the  tenderer,  who  must  bear  the  loss.  If  the 
coin  so  defaced  should  prove  not  to  be  below  the  limit, 
then  the  defacer  has  to  receive  it  and  bear  the  loss 
arising  from  his  mistake.  Any  justice  of  the  peace  may 
decide  disputes  arising  concerning  light  sovereigns  in  a 
summary  manner. 

The  only  other  gold  coin  actually  issued  is  the  half- 
sovereign,  of  which  the  standard  weight  and  remedy  are 
exactly  half  those  of  the  sovereign,  the  remedy  in  fine- 
ness the  same  as  in  the  sovereign,  and  the  least  current 
weight  61*1250  grains  (3*96083  grams).  The  Coinage  Act 
also  legalizes  the  issue  of  two-  and  five-pound  gold  pieces, 
the  weights  and  remedies  in  weight  being  corresponding 
multiples  of  those  of  the  sovereign.  Coins  of  the  value 
of  five  and  two  guineas  were  struck  by  most  of  the 
English  monarchs  from  the  time  of  Charles  II.  to  that  of 


108  MONEY. 

George  III.  Patterns  of  five-  and  two-pound  pieces  have 
been  prepared  under  Queen  Victoria ;  but  gold  coins  of 
this  size  have  not  been  issued  in  the  present  reign,  nor 
is  it  desirable,  for  reasons  stated  in  Chapter  XIII.,  that 
they  should  be  issued. 

English  Silver  Coin. 

The  further  subdivision  of  the  pound  is  effected  by 
token  coins  of  silver  and  bronze,  which  are  made  of 
such  weights  that  there  is  no  danger  of  their  metallic 
values  rising  above  the  metallic  value  of  the  gold  coins 
for  which  they  are  legally  equivalent.  Previous  to  the 
year  1816,  the  troy  pound  of  standard  silver,  containing 
925  parts  of  fine  silver  and  75  parts  of  alloy  in  1000, 
was  coined  into  62  shillings,  so  that  each  shilling  wciild 
contain  92*90  grains  of  standard  metal.  Under  these 
regulations  gold  was  rated  as  15*21  times  as  valuable  as 
silver.  As  silver,  however,  may  sometimes  become  inoro 
valuable  relatively  to  gold,  Lord  Liverpool  very  wisely 
recommended  in  his  letter  to  the  king,  that  the  weight 
of  the  shilling  should  be  reduced.  By  the  Act  56 
Geo.  III.  ch.  68,  it  was  ordered  that  the  troy  pound 
of  silver  should  be  coined  into  66  shillings,  a  reduction 
of  weight  of  about  6  per  cent.  The  new  Coinage  Act 
maintains  the  chief  provisions  of  that  of  1816,  so  that 
the  English  shilling  now  has  the  weight  of  87*27272 
grains  of  standard  silver  (5*65518  grams),  and  the 
weights  of  all  the  other  silver  coins  are  exactly  corre- 
sponding multiples  or  submultiples  of  this.  The  mint 


THE    ENGLISH    SYSTEM    OF    METALLIC    CURRENCY.       109 

remedy  in  weight  for  the  shilling  is  a  little  more  than 
the  third  part  of  a  grain,  and  in  simple  proportion  for 
the  other  coins.  The  remedy  in  fineness  is  in  all  cases 
four  parts  in  one  thousand.  The  denominations  of  coins 
authorized  are  nine  in  number,  namely,  the  crown,  half- 
crown,  florin,  shilling,  sixpence,  groat,  or  fourpenny  piece, 
threepence,  twopence,  and  penny.  All,  except  the  crown, 
are  coined  in  greater  or  less  quantity,  but  the  fourpence, 
twopence,  and  penny,  are  now  only  struck  in  very  small 
quantities  as  Maundy  money,  which,  after  being  dis- 
tributed by  the  Queen  annually  in  alms,  appears  to  find 
its  way  into  numismatic  cabinets  or  to  be  melted  down. 

All  such  coins  are  legally  current,  irrespective  of 
their  weights,  so  long  as  they  are  not  called  in  by  pro- 
clamation, or  so  worn  and  defaced  that  the  impress  of 
the  mint  cannot  be  recognized.  The  coin  in  circula- 
tion is  actually  reduced  in  weight  by  abrasion  to  a  con- 
siderable amount,  often  one-fourth  or  one-third  of  its 
original  weight.  Moreover,  the  fall  in  the  value  of 
silver  relatively  to  gold  reduces  the  metallic  worth  of 
the  coins,  so  that  no  one  can  export  them  to  foreign 
countries,  or  melt  them  for  sale  as  bullion,  without 
losing  from  10  to  30  per  cent,  of  their  nominal  value.  • 

It  would  obviously  be  a  cause  of  grievance  if  a  person 
could  be  obliged  to  receive  unlimited  amounts  of  this 
token  money  in  discharge  of  a  debt.  Merchants  might 
often  have  thousands  of  pounds  worth  of  such  coins 
thrown  upon  their  hands,  the  full  value  of  which  could 
only  be  realized  by  gradually  putting  it  into  circulation 
again.  It  was  therefore  provided  by  the  Acts  of  1816 


110  MONEY. 

and  1870,  that  silver  coin  shall  be  a  legal  tender  only  to 
the  amount  of  forty  shillings  in  any  one  payment. 
This  limit  was  chosen  apparently  because  the  two- 
pound  piece  was  in  1816  regarded  as  the  largest  coin 
then  in  circulation,  or  likely  to  be  issued. 


English  Bronze  Coinage. 

The  final  subdivision  of  the  pound  is  effected  by 
bronze  pence,  halfpence,  and  farthings,  of  which  the 
weights  when  issued  should  be  respectively  145*833, 
87*500  and  43*750  grains.  They  are  composed  of  an  alloy 
of  95  parts  by  weight  of  copper,  four  parts  of  tin,  and 
one  part  of  zinc,  being  exactly  the  same  kind  of  bronze 
as  was  previously  employed  by  the  French  mints.  The 
remedy  in  weight  is  one -fifth  of  one  per  cent.,  and  as  the 
coins  are  token  money  there  is  no  least  current  weight. 
As  the  reasons  against  allowing  them  to  be  a  legal 
tender  for  large  sums  are  stronger  than  in  the  case  of 
silver  coin,  it  is  enacted  that  bronze  coins  shall  be  a 
legal  tender  only  to  an  aggregate  amount  of  one  shilling. 

If  a  copper  penny  were  now  made  to  contain  metal 
equivalent  in  value  to  the  240th  part  of  a  sovereign,  its 
weight  would  be  871  grains,  at  the  present  market  price 
of  copper  (£75  per  ton).  Thus  the  fractional  coinage 
has  been  reduced  in  weight  nearly  to  one-sixth  part  of 
what  it  would  be  as  standard  copper  coin.  The  bronze 
of  which  the  pence  are  made  is  worth,  according  to 
Mr.  Seyd,  JLOd.  per  troy  pound,  so  that  the  metallic  values 
of  the  coins  are  almost  exactly  one-fourth  part  of  their 


THE    ENGLISH    SYSTEM    OF    METALLIC    CUBBENCY.       Ill 

nominal  values.  A  considerable  profit  therefore  accrues 
upon  the  coinage  of  bronze,  amounting  up  to  the  end  of 
1871  to  about  £270,000 ;  but  the  reduction  of  weight  is 
altogether  an  advantage,  and  is  probably  not  carried  as 
far  as  it  might  properly  be  done. 


Deficiency  of  Weight  of  the  English  Gold  Coin. 

It  is  the  theory  of  the  present  English  monetary  law, 
as  we  have  seen  (p.  107)  that  every  person  weighs  a 
sovereign  tendered  to  him,  and  assures  himself,  before 
accepting  it,  that  it  does  not  weigh  less  than  122*5  grains. 
In  former  days  it  was  not  uncommon  for  people  to  carry 
pocket-scales  for  weighing  guineas,  and  such  scales  may 
still  be  occasionally  seen  in  old  curiosity  shops.  But  we 
know  that  the  practice  is  entirely  given  up,  and  that 
even  the  largest  receivers  of  coin,  such  as  the  banks  and 
railway  companies,  and  even  tax-offices,  post-offices,  etc., 
do  not  pay  the  least  regard  to  the  law.  Only  the  Bank 
of  England,  its  branches,  and  a  few  government  offices, 
weigh  gold  coin  in  England.  The  result  is  that  a  large 
part  of  the  gold  coinage  is  worn  below  the  least  current 
weight,  and  ah1  persons  of  experience  avoid  paying  old 
sovereigns  to  the  Bank  of  England.  Only  ignorant  and 
unlucky  persons,  or  else  large  banks  and  companies 
which  cannot  otherwise  get  rid  of  light  coin,. suffer  loss. 
The  quantity  of  light  gold  coin  withdrawn  by  the  bank 
did  not  for  many  years  exceed  half  a  million  a  year  ; 
during  the  last  few  years  it  has  varied  from  £700,000 
to  £950,000.  As  the  average  amount  of  gold  coined 


112  MONEY. 

annually  is  four  or  five  millions,  and  the  coins  melted 
or  exported  are  for  the  most  part  new  and  of  full  weight, 
it  follows  necessarily,  that  the  currency  is  becoming  more 
and  more  deficient  in  weight. 

In  1869  I  ascertained,  by  a  careful  and  extensive 
inquiry,  that  31J  per  cent,  of  the  sovereigns  and  nearly 
one-half  of  the  ten-shilling  pieces  were  then  below  the 
legal  limit.  The  reader  who  has  attended  to  the  remarks 
on  Gresham's  Law  (p.  80),  will  see  that  no  amount  of 
coinage  of  new  gold  will  drive  out  of  circulation  these 
depreciated  old  coins,  because  those  who  export,  or  melt, 
or  otherwise  treat  the  coins  as  bullion,  will  take  care  to 
operate  upon  good  new  ones. 

Great  injustice  arises  in  some  cases  from  this  defective 
state  of  the  gold  currency.  I  have  heard  of  one  case  in 
which  an  inexperienced  person,  after  receiving  several 
hundred  pounds  in  gold  from  a  bullion  dealer  in  the  city 
of  London,  took  them  straight  to  the  Bank  of  England 
for  deposit.  Most  of  the  sovereigns  were  there  found  to 
be  light,  and  a  prodigious  charge  was  made  upon  the  un- 
fortunate depositor.  The  dealer  in  bullion  had  evidently 
paid  him  the  residuum  of  a  mass  of  coins,  from  which  he 
had  picked  the  heavy  ones.  In  a  still  worse  case,  lately 
reported  to  me,  a  man  presented  a  post-office  order  at 
St.  Martin's-le-Grand,  and  carried  the  sovereigns  received 
to  the  stamp-office  at  Somerset  House,  where  the  coins 
were  weighed,  and  some  of  them  found  to  be  deficient. 
Here  a  man  was,  so  to  say,  defrauded  between  two 
government  offices. 

It  should  be  stated  that  the  government  made,  in 


THE   ENGLISH   SYSTEM   OF   ME1ALLIC    CUEEENCY.        113 

July,  1870,  a  slight  effort  to  promote  the  withdrawal  of 
light  gold,  by  engaging  to  receive  it  through  the  Bank  of 
England  at  the  full  price  of  ^£3  17s.  9d.  per  ounce  by 
weight,  the  price  previously  paid  by  the  bank  having  been 
only  ^3  17s.  6Jd.,  owing  to  the  old  sovereigns  being 
a  little  below  the  standard  in  fineness.  A  certain  in- 
crease in  the  amounts  withdrawn  has  no  doubt  followed 
this  measure ;  but  the  loss  by  deficiency  in  weight  is  still 
thrown  upon  the  public,  and  as  long  as  this  is  the  case 
the  withdrawal  of  light  gold  will  continue  inadequate  to 
maintain  the  coinage  at  its  standard  weight. 

Withdrawal  of  Light  Gold  Coin. 

Some  steps  must  soon  be  taken  to  remedy  tbe  increas- 
ing deficiency  of  weight  of  the  gold  coinage  described 
above.  The  withdrawal  may  no  doubt  be  effected  in 
several  ways.  One  method  would  be  for  the  Queen  to 
issue  a  proclamation  calling  in  and  prohibiting  the  circu- 
lation of  all  gold  coins  more  than  twenty  or  twenty-five 
years  old,  as  it  is  mostly  the  older  coins  which  are  deficient 
in  weight.  Another  method  would  be  to  oblige  all  revenue 
officers,  post-masters,  and  others,  under  the  control  of 
government,  to  weigh  all  sovereigns  presented  to  them. 
If  necessary,  the  bankers  of  the  kingdom  generally 
might  be  obliged  to  weigh  coin.  But  it  is  obvious  that 
great  trouble  and  inconvenience  would  arise  from  such 
measures.  The  progress  of  the  post-office  savings  banks 
would  be  imperilled  if  every  depositor  of  a  pound  were 
liable  to  be  charged  2  per  cent,  for  lightness.  Con- 


114  MONEY. 

siderable  excitement  and  trouble  followed  the  issue  of  the 
last  proclamation  of  June,  1842,  calling  in  light  gold. 
To  make  the  last  holder  of  a  coin  pay  for  the  whole  cost 
of  its  circulation  during  thirty  or  forty  years  past,  leads 
in  many  cases  to  gross  injustice.  The  present  law  tends 
to  throw  the  loss  upon  the  poor,  who  have  usually  only 
one  or  two  sovereigns  at  a  time  to  pay,  whereas  rich 
people,  having  many,  can  avoid  paying  light  gold  at 
offices  where  it  will  be  weighed. 

I  hold  that  the  only  thorough  remedy  is  for  the 
government  to  bear  the  loss  occasioned  by  the  wear  of 
'the  gold,  as  it  already  bears  that  of  the  silver  currency. 
The  Bank  of  England  should  be  authorized  to  receive  all 
sovereigns  showing  no  marks  of  intentional  damage  or 
unfair  treatment  at  their  full  nominal  value,  on  behalf  of 
the  mint,  which  should  recoin  the  light  ones  at  the  public 
expense.  No  one  would  then  have  any  reason  for  keep- 
ing the  light  gold  away  from  the  bank ;  the  currency 
would  soon  be  purged  of  the  illegally  light  coins,  and  would 
thenceforth  be  kept  up  strictly  to  the  standard  weight ; 
all  loss  of  time  and  trouble  would  be  saved  to  individuals, 
a  consideration  which  we  should  not  lose  sight  of ;  and, 
lastly,  no  injustice  would  be  done,  as  at  prosent,  to  the 
last  holder  of  a  light  sovereign. 

In  opposition  to  such  a  proposal  it  is  usually  urged, 
that  encouragement  would  be  given  to  the  criminal 
practice  of  sweating  or  otherwise  diminishing  the  weight 
of  the  currency.  I  answer  that,  on  the  contrary,  it  is 
the  present  state  of  things  which  gives  the  best  oppor- 
tunity for  illegal  practices,  because  it  renders  the  popu- 


THE   ENGLISH    SYSTEM   OF   METALLIC    CURRENCY.        115 

lation  perfectly  accustomed  to  handling  old  and  worn 
coins.  No  one  now  actually  refuses  any  gold  money  in 
retail  business,  so  that  the  sweater,  if  he  exists  at  all, 
has  all  the  opportunities  he  can  desire.  I  have  met  with 
sovereigns  deficient  to  the  extent  of  four  to  five  grains, 
or  Sd.  to  IQd.,  but  they  nevertheless  circulate.  If  under 
a  better  system  the  gold  currency  consisted  entirely  of 
full-weight,  fresh  coins,  with  sharp,  new,  perfect  impres- 
sions, attention  would  quickly  be  drawn  to  any  coin 
which  appeared  to  be  worn  or  ill-treated  in  any  degree. 
As  the  currency,  too,  would  be  constantly  passing  through 
the  automaton  weighing-machines  of  the  Bank  of  Eng- 
land, without  previously  undergoing  the  operation  of 
garbling  by  bullion  brokers,  sweated  coins,  if  they 
existed  at  all,  would  soon  be  detected ;  whereas,  accord- 
ing to  the  present  system,  the  bank 'authorities  have 
no  opportunity  of  examining  the  whole  coinage.  It  is 
the  present  state  of  things,  then,  which  gives  the  best 
opportunity  for  tampering  with  the  currency,  though 
there  is  no  evidence  to  show  that  fraudulent  practices 
are  carried  on  to  any  appreciable  extent.  Under  the 
proposed  new  system  such  practices  would  be  rendered 
almost  impossible.  . 

Supply  of  Gold  Coin. 

It  is  the  theory  of  the  English  monetary  law  that 
every  individual  is  entitled  to  take  gold  to  the  mint  and 
have  it  coined  .gratuitously,  all  the  expenses  being  borne 
by  the  public  revenues.  It  is  intended  that  the  coin 


116  MONEY. 

shall  be  rendered  identical  in  value  with  an  equal  quantity 
of  gold  bullion,  so  that  it  shall,  in  short,  be  so  much 
certified  bullion,  and  shall  be  reconvertible  into  ingots 
without  loss.  Though  this  theory  is  simple  and  sound 
in  some  respects,  it  is  not  perfectly  carried  into  practice. 
The  mint  never  engages  to  deliver  coin  in  immediate 
exchange  for  gold  sent  for  coining,  so  that  there  is  a 
loss  of  interest  during  the  uncertain  interval  of  coinage. 
If,  instead  of  sending  gold  directly  to  the  mint,  the 
owner  pursues  the  customary  mode  of  selling  it  to  the 
Bank  of  England,  he  receives,  according  to  the  Bank 
Charter  Act  of  1844,  only  £3  17s.  9d.  per  ounce,  instead 
of  the  full  mint  price  of  £3  17s.  lOJd.  Moreover,  it  has 
been  pointed  out  by  Mr.  E.  Seyd,  that,  as  the  bank 
used  to  conduct  their  bullion  business,  there  was  a 
series  of  small  charges  or  profits  made  for  weighing, 
melting,  assaying,  the  turn  of  the  scale,  the  difference  of 
the  assay  reports,  etc.,  which  amounted  on  the  whole, 
including  the  above  charge  of  IJd.  per  ounce  for  demur- 
rage, to  0*2828  per  cent,  on  the  value  of  the  gold.  The 
bank  has  since  made  some  small  improvements  in  the 
mode  of  conducting  the  business,  but  it  may  still  be 
considered  that  the  cost  of  converting  gold  bullion  into 
sovereigns  is  about  J  per  cent. 

Though  every  person  whatever  has  the  right,  under 
the  Coinage  Act,  of  taking  gold  to  the  mint  and  having 
it  coined  free  of  charge  and  in  order  of  priority  without 
undue  preference,  no  one  ever  does  use  the  privilege, 
except  the  Bank  of  England.  During  an»  inquiry  into 
the  Bank  Act  in  1857,  Mr.  Twells  stated  that  he  had 


THE   ENGLISH    SYSTEM    OF   METALLIC    CUKRENCY.        117 


once  sent  ^91  0,000  to  the  mint,  and  was  afterwards  sur- 
prised to  find  his  firm  of  Spooner  and  Co.,  mentioned 
in  a  parliamentary  paper  as  the  only  private  firm  that 
had  ever  done  such  a  thing.  The  directors  of  the  Bank 
of  England  have  naturally  acquired  the  monopoly  of 
transactions  with  the  mint,  because  they  have  to  keep 
large  stocks  both  of  coin  and  bullion  to  meet  the  de- 
mands of  the  Issue  Department  and  of  their  customers, 
including,  directly  or  indirectly,  the  whole  of  the  bankers 
of  the  United  Kingdom.  They  can  convert  portions 
of  their  bullion  into  coin  without  any  loss  of  interest 
or  cost,  whenever  they  find  the  stock  of  coin  running 
down.  They  feel  the  monetary  pulse  of  the  whole  com- 
munity, and  they  have  all  the  requisite  appliances  for 
the  custody,  assay,  or  exact  weighing  of  bullion.  Even 
those  persons  who  need  to  possess  large  sums  of  gold 
often  employ  the  bank  to  weigh,  pack,  and  warehouse 
it,  and  the  bank  is  always  willing  to  do  the  work  for 
fixed  low  charges.  Hence  it  is  most  natural  and  con- 
venient that  the  bank  should  act  as  the  agent  of  the 
mint.  Though  the  bank  makes  a  certain  profit  out  of 
the  business,  it  is  hardly  earned  at  the  cost  of  the 
public,  but  rather  comes  out  of  the  economy  with 
which  the  work  is  managed.  It  could  in  no  way  improve 
the  currency  of  the  country  if  every  one  who  owned  a 
few  ounces  of  gold  were  to  run  with  it  to  the  mint, 
throwing  upon  the  country  the  cost  of  melting  and 
assaying  insignificant  ingots,  and  complicating  the 
accounts  and  transactions  of  the  mint. 


118  MONEY. 

Supply  of  Silver  Coin. 

On  account  of  the  absurd  misapprehensions  recently 
existing  as  to  the  scarcity  of  silver  money,  and  the 
supposed  right  of  private  individuals  to  demand  the 
coinage  of  silver,  it  may  be  well  to  describe  exactly  how 
the  supply  of  silver  coin  is  legally  regulated  and  prac- 
tically carried  out.  There  is  no  law,  statute,  or  common, 
which  gives  any  private  person,  company,  or  institution, 
the  right  to  take  silver  to  the  mint,  and  demand  coin 
in  exchange.  Thus  it  is  left  in  the  hands  of  the  Treasury 
and  the  mint  to  issue  so  much  and  such  denominations 
of  silver  coins  as  they  may  think  needful  for  the  public 
service.  This  state  of  the  law  is  perfectly  right; 
because,  as  the  silver  coins  are  tokens,  they  cannot  be 
got  rid  of  by  melting  or  exportation  at  their  nominal 
values.  If  individuals  were  free  to  demand  as  much 
silver  coin  as  they  liked,  a  surplus  might  be  thrown 
into  circulation  in  years  of  brisk  trade,  which  in  a  sub- 
sequent year  of  depressed  trade  would  He  upon  people's 
hands. 

Practically  speaking,  the  mint  is  guided  in  the  supply 
of  silver  coin  by  the  Bank  of  England,  not  because  this 
bank  has  by  law  any  special  powers,  privileges,  or  duties 
in  the  matter,  but  because,  in  acting  as  the  bank  of 
banks,  and  the  bank  of  government  departments,  it  has 
the  best  opportunities  of  judging  when  more  coin  is 
wanted.  Not  only  do  all  the  London  bankers  draw 
silver  coin  from  the  Bank  of  England  when  they  need  it, 
but  the  same  is  done  directly  or  indirectly  by  all  the 


THE    ENGLISH    SYSTEM    OF    METALLIC    CURRENCY.         119 

other  bankers  in  the  kingdom.  A  deficiency  of  silver 
coin  in  any  county  is  shown  by  the  stock  of  the  local 
bankers  running  down.  They  replenish  their  stocks 
either  from  the  nearest  branch  of  the  Bank  of  England 
or  from  their  London  agents,  who  again  draw  from  the 
Bank  of  England.  At  other  times  or  places  the  bankers 
tend  to  accumulate  a  surplus  of  silver  coin.  Some  banks 
in  a  large  town  may  happen  to  have  accounts  with  many 
shopkeepers,  butchers,  brewers,  cattle-dealers,  or  dealers 
of  one  kind  or  another,  who  deposit  silver  coin  in  large 
quantities.  Other  banks  may  be  largely  drawn  upon  by 
manufacturers  for  the  payment  of  wages,  and  may  suffer 
from  a  deficiency  of  silver  coin.  It  is  a  common  practice, 
therefore,  for  bankers  in  any  locality  to  assist  each 
other  by  buying  or  selling  superfluous  silver  coin  as  the 
case  may  require.  If  a  superfluity  of  coin,  however, 
cannot  be  got  rid  of  in  this  way,  it  may  be  returned  to 
the  Bank  of  England  or  one  of  its  branches.  This  bank 
indeed  is  in  no  way  bound  to  provide  or  receive  large 
sums  in  silver,  and  it  therefore  usually  makes  a  small 
charge  of  about  five  shillings  per  hundred  pounds  to 
cover  the  trouble  and  risk.  In  consideration  of  this 
charge  the  bank  bears  the  cost  of  transmission  by  rail- 
way, examines  the  coin  for  the  detection  of  base  pieces 
and  the  withdrawal  of  worn  coin — which  latter  it  sends 
to  the  mint  for  recoinage,  and  acts  in  general  as  the 
agent  of  the  mint. 

Having  the  business  so  much  in  its  hands,  it  is 
obvious  that  the  department  of  the  bank  which  man- 
ages the  receipt  and  issue  of  silver  coin  can  judge  accur- 


120 


MONEY. 


ately  when  a  fresh  supply  of  coin  is  wanted.  Before 
the  stock  runs  too  low  notice  is  given  to  the  mint,  and 
money  is  usually  advanced  to  the  Master  that  he  may 
purchase  silver  bullion  for  coinage.  Under  this  system 
it  is  almost  impossible  for  a  deficiency  of  currency  to 
arise  without  becoming  known  to  the  mint,  and  if,  two 
or  three  years  ago,  the  supply  could  not  be  made  equal 
to  the  sudden  demand,  it  was  because  the  mint  was  not 
supplied  by  government  with  machinery  adequate  to  the 
growing  wants  of  the  country.  The  existing  system,  in 
short,  seems  to  be  as  nearly  perfect  as  can  be  desired, 
provided  that  the  mint  be  rebuilt  and  organized  in  such 
a  manner  as  to  enable  it  to  meet  any  demand  which  the 
fluctuations  of  trade  may  occasion. 

The  Royal  Mint. 

While  treating  of  the  English  system  of  metallic 
money,  it  is  impossible  to  avoid  expressing  the  wish  that 
the  House  of  Commons  and  the  government  will  no 
longer  delay  a  complete  reconstruction  of  the  Eoyal 
Mint.  The  mint  factories,  as  they  now  stand,  were  very 
creditable  to  the  generation  which  erected  them ;  but 
it  is  needless  to  say  that  in  the  last  fifty  or  seventy  years 
we  have  immensely  advanced,  both  in  the  art  of  con- 
structing machinery  and  in  our  ideas  of  the  arrange- 
ment and  economy  of  manufactories.  What  should  we 
think  of  a  Cotton  Spinning  Company,  which  should 
propose  to  use  a  mill  and  machinery  originally  con- 
structed by  Arkwright,  or  to  drive  a  mill  by  engines' 


THE    ENGLISH    SYSTEM    OF    METALLIC    CURRENCY.         121 

turned  out  of  the  Soho  works  in  the  time  of  Boulton  and 
Watt  ?  Yet  the  nation  still  depends  for  its  coinage  upon 
the  presses  actually  erected  by  Boulton  and  Watt, 
although  much  more  convenient  coining  presses  have 
since  heen  invented  and  employed  in  foreign  and  colonial 
mints. 

The  present  mint  workshops  are  quite  inadequate  for 
meeting  the  demands  which  may  be  thrown  upon  them 
by  the  increasing  industry  and  wealth  of  the  United 
Kingdom,  not  to  speak  of  the  British  Empire.  A  few 
years  ago  it  was  impossible  to  turn  out  silver  coin  as 
quickly  as  it  was  required  when  trade  was  brisk,  and, 
while  one  metal  is  being  coined,  there  are  no  means  of 
meeting  the  demand  for  other  kinds  of  coin.  As  to  the 
bronze  coinage,  it  has  generally  to  be  obtained  from 
Birmingham  presses,  and  bronze  blanks  have  also  to  be 
purchased  at  times.  Even  silver  blanks  have  been  ob- 
tained from  .Birmingham.  The  British  mint  ought  to 
represent  the  skill  and  wealth  of  the  British  nation, 
and  no  petty  considerations  should  be  allowed  to  post- 
pone so  necessary  a  reform. 

Nothing  short  of  a  complete  reconstruction  of  the 
mint  workshops  will  meet  the  requirements  of  the  case. 
If  this  is  to  be  done,  much  convenience  and  economy 
will  arise  from  abandoning  the  large  and  valuable  site 
upon  Tower  Hill,  and  erecting  an  entirely  new  mint  in  a 
more  accessible  position.  The  opinions  of  Mr.  E.  Seyd 
upon  this  subject  are  worthy  of  much  attention. 


122  MONEY. 


CHAPTEE  XI. 

FRACTIONAL  CURRENCY. 

ONE  monetary  question  which  can  hardly  be  said  to  be 
satisfactorily  solved  as  yet,  is  that  of  selecting  the  best 
possible  material  for  coins  of  small  value,  called  in 
English  pence,  in  French  monnaie  d' appoint.  The 
fractional  coins  should  be  equal  in  value  to  about  a 
tenth  part  of  the  silver  ones,  coin  for  coin,  but  it 
unfortunately  happens  that  there  is  no  suitable  metal 
of  which  the  value  is  now  one-tenth  part  of  that  of 
silver.  In  the  time  of  the  Romans,  gold  was  about  ten 
times  as  valuable  as  silver,  and  silver  about  ten  times  as 
valuable  as  copper,  so  that  there  would  then  have  been 
no  difficulty  in  constructing  a  perfect  decimal  system  of 
money. 

To  throw  light  upon  this  subject,  I  have  drawn  out 
the  following  table,  in  which  are  shown  the  weights 
of  the  principal  commercial  metals  which  are  of  equal 
values  at  present.  The  numbers  in  such  a  table  must 
of  course  be  subject  to  perpetual  fluctuations,  according 
to  the  changes  in  the  market  prices  of  the  metals.  In 
some  cases,  too,  it  is  difficult  to  find  any  accurate  quota  • 


FRACTIONAL   CURRENCY.  123 

tions  at  all,  and  the  price  often  depends  greatly  upon 
the  manufactured  state  of  the  metal.  Gold  and  silver 
are  taken  as  of  standard  fineness,  and  gold  forms  the 
unit. 

Equivalent  Weights  of  the  Principal  Metals. 

Gold.     ...       1  Tin     ...        942 

Platinum    .     .  3J-  Copper     .     .     1,696 

Aluminium      .  7  Lead   .     .     .     6,360 

Silver    ...  16  Bar  Iron .     .  15,900 

Nickel   ...  71  Pig  Iron  .     .  50,880 

It  may  be  worthy  of  notice  that  when  we  thus  draw 
out  what  may  be  called  the  commercial  equivalents  of  the 
metals,  they  are  found  to  form  a  series  very  rudely 
approximating  to  a  geometrical  series  with  the  common 
ratio  3.  Silver,  however,  is  an  exception.  There  is, 
too,  one  term  missing  between  nickel  and  tin,  and  as 
tin  is  not  a  coinable  metal,  there  is  a  wide  interval 
between  nickel  and  copper,  and  a  still  wider  one  between 
silver  and  copper.  At  present  silver  is  almost  exactlr 
one  hundred  times  as  valuable  as  copper ;  hence  copper 
pence  must  either  contain  in  metallic  value  but  a  frac- 
tion of  the  nominal  value,  or  else  they  must  be  very 
heavy  and  bulky.  When  a  new  copper  coinage  was  issued 
in  England  from  the  mint  of  Boulton  and  Watt  in  1797, 
the  coins  were  made  nearly  of  standard  weight,  at  the 
rate  of  an  ounce  avoirdupois  for  each  penny.  There 
was  a  double  inconvenience  in  this.  Sixteen  pence 
actually  weighed  a  pound  avoirdupois,  at  which  rate  the 


124  MONET. 

people  would  now  be  carrying  three  times  as  great  a 
weight  in  their  pockets  as  with  our  bronze  currency. 
Moreover,  the  price  of  copper  haying  risen,  Boulton's 
pence  became  more  valuable  as  metal  than  as  coins, 
and  were  used  as  material  in  spite  of  their  beautiful 
execution. 

The  first  and  most  obvious  course  was  to  reduce  the 
weight  of  the  penny,  making  it  purely  a  token  coin. 
The  old  pennies  of  Victoria  weighed  about  290  grains 
each,  instead  of  about  433  grains,  as  in  the  coinage  of 
Boulton  and  Watt,  a  reduction  of  about  one-third  part. 
The  bronze  penny  has  been  still  further  reduced,  and 
ought  to  weigh  145*8  grains. 

There  are  two  inconveniences  which  may  arise  from 
too  great  and  sudden  a  reduction  in  the  weight  of  token 
currency.  There  is  a  risk  of  the  population  rejecting 
the  new  coins  as  fraudulently  light.  This  was  the  case 
with  the  new  copper  five-  and  ten-centime  pieces,  struck 
in  France  in  1794  by  the  Revolutionary  Government, 
at  the  rate  of  one  gram  for  each  centime,  which  was 
half  the  previous  rate.  The  government  was  obliged 
to  call  in  the  light  coin  and  issue  it  again  at  the  old 
weight,  and  only  in  the  time  of  Napoleon  III.  could 
coins  of  one  gram  per  centime  be  put  into  circulation. 
The  people,  then,  must  be  educated  to  receive  very  light 
tokens,  and  the  reduction  must  be  made  by  moderate 
steps. 

In  the  second  place,  if  the  metal  is  easily  coined  01 
manipulated  like  copper,  if  it  fails  to  retain  a  very  good 
impression,  and  if  there  is  a  considerable  margin  foi 


FRACTIONAL    CURRENCY.  125 

profit,  the  temptation  to  false  coiners  might  become 
strong.  I  am  not  aware  that  this  has  ever  happened 
in  regard  to  the  English  copper  coinage,  but  counterfeit 
sous  used  to  be  manufactured  on  a  large  scale  in  the 
Faubourg  Saint  Antoine,  in  Paris,  almost  under  the  eyes 
of  the  government. 

At  the  best,  too,  pure  copper  makes  indifferent  coin, 
being  deficient  in  hardness,  so  that  it  soon  becomes  dis- 
figured; it  has  a  disagreeable  odour  which  it  communi- 
cates to  the  fingers  ;  and  when  exposed  to  damp  air  it 
becomes  covered  with  verdigris,  which  is  both  unsightly 
and  poisonous.  I  proceed  to  consider  the  various  ways  in 
which  it  has  been  attempted  to  substitute  for  copper 
coin  some  more  convenient  currency. 

Billon  Coin. 

Pennies  and  twopenny  pieces,  if  now  made  of  stan- 
dard silver,  like  the  Maundy  money,  would  be  too  small 
and  light  for  use,  weighing  respectively,  7J  and  14£ 
grains.  Even  the  threepenny  pieces,  now  so  abundant 
in  England,  and  weighing  21 '8  grains  each,  are  incon- 
veniently small.  In  England,  for  a  very  long  time,  no 
silver  has  been  coined  of  less  fineness  than  the  old 
standard  of  925  parts  in  1000.  In  many  continental 
countries  the  smaller  currency  has  been  made  of  a  very 
low  alloy  of  silver  and  copper,  called  billon.  Such 
coins  were  at  one  time  current,  to  a  certain  extent,  in 
France,  the  metal  containing  only  one  part  of  silver  in 
five  of  alloy,  but  they  have  long  been  recalled.  In  Nor- 


126  MONEY. 

way  the  small  cui'rency  now  consists  partly  of  half- 
skilling  and  one-skilling  pieces  in  copper,  the  stilling 
being  nearly  equal  in  value  to  an  English  halfpenny, 
but  principally  of  two,  three,  and  four-skilling  pieces, 
composed  of  billon,  containing,  according  to  an  analysis 
performed  for  me  at  the  Owens'  College  chemical  labora- 
tory, one  part  of  silver  and  three  of  copper.  These 
billon  pieces  are  very  convenient  in  size,  and,  being  for 
the  most  part  newly  issued,  are  clean  and  neat.  Billon 
is  still  being  coined  in  Austria. 

It  is  in  the  states  now  forming  the  German  empire 
that  billon  coins  have  been  most  extensively  used, 
especially  in  pieces  of  three,  four,  and  six  kreutzers,  the 
so-called  scheidemiinze  now  being  recalled.  This  con- 
sists of  silver  alloyed  with  three,  four,  or  more  times  its 
weight  of  copper.  Before  such  base  silver  is  passed 
through  the  coining  press,  it  is  usual  to  dissolve  the 
copper  from  the  surface  of  the  blank  pieces  of  metal,  so 
as  to  produce  a  film  of  pure  white  silver  upon  the  sur- 
face. This  operation,  called  colouring,  gives  a  fine 
bright  appearance  to  the  coins  when  new,  and  they  are 
easily  put  into  circulation.  But  after  a  little  time  the 
silver  film  is  worn  off,  and  the  coins  assume  a  very 
patchy  aspect.  Billon  coinage  seems  to  have,  too,  an 
extraordinary  power  of  accumulating  a  layer  of  dirt  of 
a  very  disagreeable  character,  with  which  all  travellers 
in  Germany  in  past  years  must  be  well  acquainted. 
Moreover,  it  offers  great  facilities  to  the  counterfeiter, 
and  for  several  sufficient  reasons  cannot  be  recommended 
for  adoption. 


FBACT10NAL    CURRENCY.  127 


Composite  Coin. 

It  is  said  that  Saint  Louis,  the  great  King  of  France, 
finding  much  want  of  small  money  to  pay  his  soldiers, 
caused  little  pieces  of  silver  wire,  weighing  nine  and 
eighteen  grains,  to  be  fixed  on  pieces  of  stamped  leather, 
and  circulated  for  one-  and  two-dime  pieces.  The  silver 
gave  the  value,  and  the  leather  served  as  a  case  or  handle 
to  preserve  the  small  bit  of  metal  from  being  lost.  In 
recent  times,  composite  coins,  having  a  centre  piece  of 
silver  and  a  rim  of  copper,  were  constructed  on  similar 
principles.  A  model  penny  of  this  kind  has  an  agree- 
able appearance  and  a  convenient  size,  but  seems  to  be 
subject  to  several  objections.  The  cost  of  coinage  would 
be  considerable ;  the  coins  could  hardly  be  made  so 
perfect  that  the  centre  would  not  come  out  sometimes ; 
the  contact  of  dissimilar  metals  would  set  up  electro- 
chemical action,  and  the  copper  would  be  corroded ;  and, 
lastly,  it  would  be  difficult  to  detect  counterfeit  silver 
pieces  inserted  by  the  forger.  Composite  coins  of  a 
similar  character  were  struck  in  France  under  Napoleon 
L,  about  the  year  1810,  but  were  never  circulated. 
Pennies  formed  of  a  copper  centre  with  a  brass  rim  have 
been  employed  in  England,  and  tin  pence,  halfpence, 
or  farthings,  with  a  copper  plug  inserted  near  the 
centre,  were  long  used,  and  are  plentiful  in  numismatic 
cabinets. 


128  MONET. 


Bronze  Coin. 

It  was  known,  even  in  prehistoric  times,  that  a  small 
quantity  of  tin  communicated  hardness  to  copper,  and 
the  ancient  nations  were  familiar  with  the  use  of  hronze 
thus  manufactured.  The  French  Revolutionary  Govern- 
ment melted  up  the  bells  of  the  churches  seized  by  them, 
and  the  sous  de  cloche,  as  they  were  called,  made  from 
the  bell  metal,  were  superior  to  coins  of  pure  copper. 
Yet  curiously  enough  no  modern  government  thought  of 
employing  a  well-chosen  bronze  for  small  money,  until 
the  government  of  the  late  Emperor  of  the  French 
undertook  the  recoinage  of  the  old  sous  in  1852.  This 
recoinage  was  carried  out  with  great  success. 

Between  the  years  1853  and  1867  coins  to  the 
nominal  value  of  about  two  millions  sterling,  consisting 
of  800  millions  of  pieces,  and  weighing  eleven  millions 
of  kilograms  (10,826  tons)  were  struck,  in  addition  to 
a  subsequent  issue  of  about  200  millions  of  pieces.  The 
experiment  was  in  almost  every  way  successful.  The 
ten  and  five-centime  pieces  now  circulating  in  France 
are  models  of  good  minting,  with  a  low  but  sharp  and 
clear  impression.  They  were  readily,  accepted  by  the 
people,  although  only  weighing  as  much  as  the  sous 
rejected  in  the  time  of  the  Revolution,  namely,  one  gram 
per  centime,  and  they  are  wearing  well. 

The  bronze  used  consists  of  95  parts  of  copper,  four 
of  tin,  and  one  of  zinc.  It  is  much  harder  than  copper, 
yet  so  tough  and  impressible  that  it  takes  a  fine  impres- 


FRACTIONAL    CURRENCY.  129 

Bion  from  the  dies,  and  retains  it  for  a  long  time.  It 
cannot  be  struck  except  by  a  press  of  some  power,  and 
thus  counterfeiting  is  rendered  almost  impossible.  It 
can  hardly  be  said  to  corrode  by  exposure  to  air  or 
damp,  and  merely  acquires  a  natural  patina,  or  thin 
dark  film  of  copper  oxide,  which  throws  the  worn  parts 
of  the  design  into  relief,  and  increases  the  beauty  of 
the  coin. 

Bronze  has  since  been  coined  by  the  governments 
of  England,  the  United  States,  Italy,  and  Sweden,  and 
it  seems  probable  that  it  will  entirely  take  the  place  of 
copper.  The  German  government  is  now  using  bronze 
for  the  one-pfennig  pieces. 

English  Bronze  Coin. 

The  old  copper  coinage  of  the  United  Kingdom  was 
replaced,  from  ten  to  fifteen  years  ago,  by  a  much  more 
convenient  and  elegant  series  of  pence,  halfpence,  and 
farthings,  struck  in  exactly  the  same  kind  of  bronze  as 
the  French  centime  pieces.  The  English  coins,  though 
far  from  being  so  well  executed  as  the  French  ones,  are 
clean,  and  likely  to  wear  well.  The  only  great  objection 
which  can  be  raised  to  them,  is  that  .they  are  still  of 
considerable  size  and  weight,  although  less  than  the 
old  copper  coins.  As  all  the  latter  are  now  withdrawn, 
and  few  of  the  new  ones  can  yet  be  lost  or  destroyed, 
we  know  very  accurately  the  amount  of  the  English 
fractional  currency.  The  whole  amount  issued  in  the 
years  1861  to  1873  is  as  follows  :— 


130  MONET. 

Weight                     Number  of  Nominal  value  in 

in  tons.                         pieces.  pounds  sterling. 

Pennies     .     .     .  1,585         170,419,000  £710,082 

Halfpennies    .     .     918         164,505,000  342,719 

Farthings       .     .      149           53,594,000  55,826 


2652        388,518,000  £1,108,627 

Including  a  small  amount  issued  before  1861,  the 
whole  value  of  the  bronze  coin  put  into  circulation  up 
to  the  end  of  1873  was  £1,143,633.  It  is  remarkable 
that  the  quantity  of  small  coins  used  in  England  is 
much  less  than  in  France,  where  at  least  1000  millions 
of  pieces,  chiefly  of  ten  and  five  centimes,  are  in  use. 
Thus  while  the  English,  Scotch,  and  Irish  seem  to  be 
sufficiently  supplied  with  S^d,  per  head,  the  French 
employ  on  the  average  1  franc  60  centimes,  (15  pence), 
the  Belgians,  2  francs  26  centimes  (21J  pence),  and  the 
Italians  as  much  as  3  francs  10  centimes  (29J  pence). 

Weight  of  the  Currency. 

It  is  curious  that  the  weights  of  the  several  kinds  of 
currency  vary  inversely  as  their  nominal  values ;  thus, 
taking  the  paper  circulation  of  the  United  Kingdom 
at  40  millions,  the  gold  roughly  at  100  millions,  the 
silver  at  15  millions,  and  the  bronze  as  above,  I  find 
the  weights  to  be  approximately  as  follows : — 

Paper  currency 16  tons 

Gold        „          786     „ 

Silver       „          1670    „ 

Bronze  2652 


5124  tons 


FRACTIONAL    CURRENCY.  131 

It  is  impossible  to  give  a  satisfactory  reason  why 
the  least  valuable  part  of  the  currency  should  be  so 
much  the  most  weighty.  A  tendency  thus  arises  for  the 
pence  to  accumulate  upon  the  hands  of  retail  traders, 
especially  publicans,  omnibus  proprietors,  and  news- 
paper publishers.  At  one  time  the  London  brewers  had 
such  large  quantities  of  bronze  coins  thrown  upon  their 
hands  from  the  public-houses  which  they  own,  that  the 
mint  had  eventually  to  arrange  to  buy  it  from  them, 
instead  of  coining  more.  In  large  towns,  arrangements 
have  to  be  made  for  getting  rid  of  the  accumulating 
pence  with  the  least  trouble  and  loss  ;  the  coin  is  trans- 
ferred weekly  to  mills  and  factories,  where  it  is  used  in 
paying  wages.  Bankers  refuse  to  have  anything  to  do 
with  bronze  coin  beyond  the  amount  of  a  shilling,  for 
which  it  is  legal  tender,  and  it  is  usual  for  persons  to 
object  to  receive  more  than  %d.  or  3d.  of  change  in  pence. 

It  is  worthy  of  inquiry  whether  this  tendency  of  the 
fractional  currency  to  stagnation  would  not  be  remedied 
by  the  substitution  of  a  much  lighter  and  more  elegant 
currency  of  nickel,  or  of  some  alloy  yet  to  be  invented. 
In  France,  it  is  found  that  the  bronze  coinage  circulates 
much  more  freely  than  the  old  copper  and  bell-metal 
sous,  which  tended  to  accumulate  in  certain  localities. 
Our  bronze  pence  are  much  better  than  the  old  copper 
pence,  but  it  does  not  follow  that  we  have  in  any  degree 
approximated  to  perfection.  Coins  of  about  half  the 
weight  of  those  in  circulation  would  be  much  more 
convenient. 


132  MONEY. 

Nickel,  Manganese,  Aluminium,  and  other  Metals  and 
Alloys. 

The  employment  of  nickel  in  the  manufacture  of 
small  money  has  already  been  referred  to  (p.  49),  and 
if  the  conditions  of  supply  and  demand  of  this  metal 
were  more  steady  we  should  perhaps  want  nothing 
better.  The  alloy  of  nickel  and  copper  generally  used 
is  hard  and  difficult  to  coin,  but  it  takes  a  fine  impres- 
sion which  it  will  probably  require  long  wear  to  efface. 
Nickel  coinage  is  thus  very  unlikely  to  be  counterfeited, 
and  its  peculiar  nondescript  colour  renders  it  easily 
distinguishable  from  silver  or  gold  money.  The  pro- 
gress of  metallurgy,  however,  is  making  us  acquainted 
with  several  new  metals  and  many  new  alloys,  and  it  is 
quite  likely  that  some  new  material  for  fractional  money 
will  eventually  be  found.  Dr.  Percy,  having  regard  to 
the  rising  price  of  nickel,  suggests  that  manganese 
should  be  employed  instead,  as  it  gives  alloys  of  similar 
character,  and  can  be  procured  in  greater  quantities. 

Dr.  Clemens  "Winkler  strongly  recommends  alumi- 
nium as  suited  for  monetary  purposes.  Trial  pieces, 
marked  "  J  real,  1872,"  have  been  struck,  and  one  of 
them  may  be  seen  in  the  Monetary  Museum  at  the  Paris 
mint.  This  metal  has  a  characteristic  bluish  white 
colour,  but  its  great  advantage  is  its  low  specific  gravity. 
The  trial  piece  in  question,  of  which  a  specimen  was 
furnished  to  me  by  Mr.  Eoberts,  the  chemist  of  the  Eng- 
lish mint,  is  two  centimetres,  or  0'79  inch,  in  diameter, 
a  little  wider  than  a  sixpence  and  much  thicker,  and  yet 


FRACTIONAL    CUEBENCY.  133 

weighs  only  one  gram,  or  15J  grains.  Were  our  pence 
and  halfpennies  as  light  and  convenient  as  this  coin,  we 
could  carry  many  of  them  in  the  pocket  without  discom- 
fort. The  chief  difficulty  in  adopting  such  a  new  metal 
would  arise  from  the  uncertain  price  at  which  it  can  be 
produced.  It  is  unknown,  too,  how  it  would  wear.  Even 
if  pure  aluminium  were  found  to  be  unsuitable  for  coining, 
some  of  its  remarkable  alloys  might  be  employed  instead. 
Mr.  Graham,  the  late  Master  of  the  Mint,  had  a  series  of 
trial  pieces  of  one  to  ten  cents  struck  in  the  so-called 
"  aluminium  bronze." 

I  may  suggest  that  one  of  the  best  possible  materials 
for  small  money  would  be  steel,  provided  it  could  be 
prevented  from  rusting.  Steel  coins  would  be  difficult  to 
strike,  but  when  once  struck  could  be  hardened,  so  as  to 
be  almost  indestructible.  The  cheapness  of  the  material 
would  allow  of  their  production  on  a  large  scale  at  small 
cost,  while  they  could  not  possibly  be  imitated  by  the 
false  coiners  with  any  profit.  Hence  it  would  be  needless 
to  pay  any  attention  to  the  metallic  value  of  the  coins, 
which  might  be  struck  of  the  most  convenient  sizes, 
probably  those  of  the  sixpence  and  shilling.  Now  it 
has  been  pointed  out  by  Sir  John  Herschel  (Physical 
Geography,  reprinted  from  the  "  Encyclopaedia  Britan- 
nica,"  §  320,  p.  289),  that  steel  appears  to  be  protected 
from  rusting  by  being  alloyed  with  a  small  quantity  of 
nickel ;  this  at  least  is  the  effect  in  the  case  of  meteoric 
iron.  It  is  much  to  be  desired  that  such  an  alloy  should 
be  fairly  tried.  I  am  informed  by  Mr.  Roberts,  that 
silver  also  alloys  well  with  iron  or  steel,  and  that  such 


134  MONEY. 

mixtures  have  been  proposed  for  coining  purposes.  An 
alloy  of  silver,  copper,  and  zinc  has  already,  indeed,  been 
fully  tested  in  Switzerland,  where  it  is  used  for  twenty, 
ten,  and  five-centime  pieces.  These  coins  are  convenient 
in  size,  but  have  a  poor  yellowish  white  appearance. 
They  have  not  been  adopted,  so  far  as  I  know,  by  any 
other  country ;  and  there  seems  to  be  no  use  in  putting 
silver  into  them,  as  it  would  probably  be  easy  to  produce 
a  similarly  coloured  alloy  without  silver. 

It  is  a  misfortune  of  what  may  be  called  the  science  of 
monetary  technology,  that  its  study  is  almost  of  necessity 
confined  to  the  few  officers  employed  in  government  mints. 
Hence  we  can  hardly  expect  the  same  advances  to  be 
made  in  the  production  of  money  as  in  other  branches  of 
manufacture,  where  there  is  wide  and  free  competition. 
Moreover,  it  is  very  difficult  to  get  an  opportunity  of 
testing  any  new  kind  of  coin ;  in  a  large  currency,  like 
that  of  the  United  Kingdom,  it  is  almost  impossible  to 
execute  experiments.  But  it  may  be  suggested  that  the 
English  mint,  in  supplying  corns  for  some  of  the  smaller 
British  colonies  and  possessions,  enjoys  an  admirable 
opportunity  for  testing  new  proposals.  This  need  not 
involve  any  cost  to  such  colonies,  as  the  English  govern- 
ment, in  striking  a  few  hundreds  or  thousands  of  pounds* 
worth  of  small  coin  for  a  colony,  might  readily  engage  to 
withdraw  them  at  its  own  cost  if  found  unsuitable  after 
a  certain  number  of  years. 


CHAPTEK  XII. 

THE  BATTLE  OF  THE  STANDAED3. 

EVER  since  the  great  discoveries  of  gold  in  California 
and  Australia  began  to  disturb  the  value  of  that  metal 
relatively  to  silver  and  to  other  commodities,  it  has  been 
a  continual  subject  of  discussion  what  standard  of  value 
should  be  ultimately  adopted.  There  have  been  par- 
tizans  of  the  now  antiquated  silver  standard,  of  the 
double  standard,  and  of  the  gold  standard.  Having  in 
England  long  possessed  a  gold  standard,  we  have  been 
only  in  a  secondary  degree  concerned  in  such  discussions, 
upon  which  quite  a  library  of  works  has  been  written  by 
distinguished  French,  Belgian,  German,  Swiss,  Italian, 
and  Dutch  economists.  The  changes  actually  effected  in 
the  currencies  of  Europe  since  1849  are  of  the  most 
extensive  character.  Some  nations  have  more  than  once 
changed  their  policy.  Holland,  anticipating  a  great  fall 
in  the  value  of  gold,  adopted  silver  as  the  single  standard 
of  value  in  1850.  This  change  had  to  be  effected  at 
considerable  pecuniary  loss,  and  it  is  understood  that 
Holland  is  again  exposed  to  the  trouble  and  expense 
of  having  to  admit  a  gold  standard,  either  as  a  sole 
legal  tender,  like  Germany,  or  else  concurrently  with 


136  MONEY. 

a  restricted  silver  coinage,  like  Belgium  and  the  other 
monetary  allies  of  France. 

From  the  time  of  Locke  to  that  of  Lord  Liverpool,  the 
comparative  advantages  of  gold  and  silver,  as  the  prin- 
cipal measure  of  value,  were  a  frequent  subject  .of  discus- 
sion among  English  political  writers.  Locke  and  most 
of  the  earlier  English  economists  upheld  silver.  Lord 
Liverpool  definitely  decided  English  policy  in  favour  of 
gold,  and  the  tendency  of  opinion  is  now  strongly  in  the 
same  direction.  Several  countries  have  recently  changed 
from  silver  to  gold,  and  since  the  single  example  of 
Holland  no  nation  has  passed  from  gold  to  silver.  Even 
Austria,  which  is  still  supposed  to  represent  the  silver 
standard,  has  taken  a  step  towards  a  change  by  coining 
ten-  and  twenty-franc  pieces  in  gold,  the  inscriptions 
10  Francs  and  20  Francs  now  appearing,  as  well  as  4 
Gulden  and  8  Gulden,  on  the  new  gold  coins  of  the 
Austro -Hungarian  empire. 

The  Double  Standard. 

The  single  silver  standard  having  been  practically 
abandoned  as  regards  the  currencies  of  Europe,  the 
battle  has  more  recently  waged  between  the  partizans  of 
the  double  standard,  represented  in  the  currencies  of 
France  and  the  Monetary  Convention  of  Western  Europe, 
and  those  who  uphold  a  gold  standard  combined  with 
subsidiary  coinages  of  silver  and  small  money,  somewhat 
in  the  manner  of  the  English  system.  The  advantages 
of  the  double  standard  have  been  most  ably  advocated 
by  MM.  Wolowski,  Courcelle-Seneuil,  Seyd,  Leon,  Prince* 


THE    BATTLE    OF    THE    STANDARDS.  137 

Smith,  and  others,  while  MM.  Chevalier,  De  Parieu, 
Hendriks,  Frere  Orban,  Levasseur,  Feer-Herzog,  and 
Juglar,  have  been  some  of  the  leading  upholders  of  the 
gold  standard.  The  literature  of  the  subject  is  very 
extensive  and,  to  most  readers,  dreary  In  the  extreme, 
but  I  will  try  to  give  a  tolerably  concise  statement  of  the 
principal  arguments. 

In  the  first  place,  I  have  no  doubt  whatever  that 
M.  Wolowski  is  theoretically  quite  correct  in  what  he  says 
about  the  compensatory  action  of  the  double  standard 
system.  English  writers  seem  completely  to  have  mis- 
understood the  question,  asserting  that  the  system 
exposes  us  to  the  extreme  fluctuations  of  both  metals. 
No  doubt,  when  gold  and  silver  are  both  legal  tenders  to 
unlimited  amounts,  there  will  be  a  tendency  to  pay  in 
that  metal  which  is  overrated  in  the  legal  ratio  of  15J 
to  1.  Only  when  the  price  of  standard  silver  is  exactly 
5s.  OJfd.  per  ounce  is  it  a  matter  of  indifference  in 
France,  whether  a  debt  be  paid  in  gold  or  silver,  and  this 
exact  price  has  only  been  quoted  a  few  times  in  the 
London  market  in  the  last  thirty  years.  Accordingly,  it 
has  been  urged  that  the  double  standard  is  not  really  a 
double  one,  but  only  an  alternative  gold  and  silver  stan- 
dard. "When  silver  is  lower  in  price  than  5s.  OJf  d.  per 
ounce,  silver  becomes  the  standard;  when  silver  rises 
above  this  price,  gold  takes  its  place  as  the  real  measure 
of  value. 

So  far  the  English  economists  are  no  doubt  correct ; 
but,  in  the  first  place,  it  does  not  follow  that  the  prices 
of  commodities  follow  the  extreme  fluctuations  of  value 


138 


MONEY. 


of  both  metals,  as  many  writers  have  inconsiderately 
declared.  Prices  only  depend  upon  the  course  of  the 
metal  which  happens  to  have  sunk  in  value  below  the 
legal  ratio  of  15 J  to  1.  Now,  if  in  the  accompanying 
figure  we  represent  by  the  line  A  the  variation  of  the 
value  of  gold  as  estimated  in  terms  of  some  third  com- 
modity, say  copper,  and  by  the  line  B  the  corresponding 
variations  of  the  value  of  silver ;  then,  superposing  these 
curves,  the  line  C  would  be  the  curve  expressing  the 
extreme  fluctuations  of  both  metals.  Now  the  standard 
of  value  always  follows  the  metal  which  falls  in  value  ; 
hence  the  curve  D  really  shows  the  course  of  variation 
of  the  standard  of  value.  This  line  undergoes  more 
frequent  undulations  than  either  of  the  curves  of  gold 
or  silver,  but  the  fluctuations  do  not  proceed  to  so  great 
an  extent,  a  point  of  much  greater  importance. 


THE    BATTLE    OF    THE    STANDARDS.  189 

Compensatory  Action. 

Nor  is  this  the  whole  error  of  the  English  writers. 
A  little  reflection  must  show  that  MM.  Wolowski  and 
Courcelle-Seneuil  are  quite  correct  in  urging  that  a 
compensatory  or,  as  I  should  prefer  to  call  it,  equilibratory 
action,  goes  on  under  the  French  currency  law,  and  tends 
to  maintain  both  gold  and  silver  more  steady  in  value 
than  they  would  otherwise  be.  If  silver  becomes  more 
valuable  than  in  the  ratio  of  1  to  15  J  compared  with 
gold,  there  arises  at  once  a  tendency  to  import  gold  into 
any  country  possessing  the  double  standard,  so  that  it 
may  be  coined  there,  and  exchanged  for  a  legally 
equivalent  weight  of  silver  coin,  to  be  exported  again. 
This  is  no  matter  of  theory  only,  the  process  having 
gone  on  in  France  until  the  principal  currency,  which 
was  mainly  composed  of  silver  in  1849,  was  in  1860 
almost  wholly  of  gold.  France  absorbed  the  cheapened 
metal  in  vast  quantities  and  emitted  the  dearer  metal, 
which  must  have  had  the  effect  of  preventing  gold  from 
falling  and  silver  from  rising  so  much  in  value  as 
they  would  otherwise  have  done.  It  is  obvious  that, 
if  gold  rose  in  value  compared  with  silver,  the  action 
would  be  reversed ;  gold  would  be  absorbed  and  silver 
liberated.  At  any  moment  the  standard  of  value  is  doubt- 
less one  metal  or  the  other,  and  not  both ;  yet  the  fact 
that  there  is  an  alternation  tends  to  make  each  vary 
much  less  than  it  would  otherwise  do.  It  cannot 
prevent  both  metals  from  falling  or  rising  in  value 
compared  with  other  commodities,  but  it  can  throw 


140  MONEY. 

variations  of  supply  and  demand  over  a  larger  area, 
instead  of  leaving  each  metal  to  be  affected  merely  by 
its  own  accidents. 

Imagine  two  reservoirs  of  water,  each  subject  to 
independent  variations  of  supply  and  demand.  In  the 
absence  of  any  connecting  pipe  the  level  of  the  water  in 
each  reservoir  will  be  subject  to  its  own  fluctuations  only. 
But  if  we  open  a  connection,  the  water  in  both  will 
assume  a  certain  mean  level,  and  the  effects  of  any 
excessive  supply  or  demand  will  be  distributed  over  the 
whole  area  of  both  reservoirs.  The  mass  of  the  metals, 
gold  and  silver,  circulating  in  Western  Europe  in  late 
years,  is  exactly  represented  by  the  water  in  these 
reservoirs,  and  the  connecting  pipe  is  the  law  of  the  7th 
Germinal,  an  XI,  which  enables  one  metal  to  take  the 
place  of  the  other  as  an  unlimited  legal  tender. 

The  Demonetization  of  Silver. 

M.  Wolowski  has  earnestly  warned  Europe  against 
the  danger  of  abrogating  the  law  of  the  double  standard, 
and  demonetizing  silver.  Germany,  in  adopting  a  gold 
standard,  is  causing  a  considerable  demand  for  gold,  and 
at  the  same  time  throwing  many  millions  of  silver  coins 
upon  the  market.  Austria,  Denmark,  Sweden,  and  Nor- 
way are  likely  to  follow  her  example.  If  other  countries 
were  to  insist  upon  suddenly  having  a  gold  money, 
it  is  evident  that  gold  would  tend  to  rise  in  value  com- 
pared with  silver,  which  might  be  largely  depreciated. 
If  France,  Italy,  Belgium,  and  other  countries  now 


THE  BATTLE  OF  THE  STANDARDS.         141 

possessing  theoretically  the  double  standard,  were  to 
allow  the  free  action  of  their  monetary  laws,  the  depre- 
ciated silver  would  flow  in  and  replace  the  appreciated 
gold,  so  that  the  change  of  values  would  be  moderated. 
M.  "Wolowski  asserts  that  if  this  compensatory  action  be 
suspended,  and  the  demonetization  of  silver  be  extended, 
there  must  ensue  a  disastrous  rise  in  the  value  of  gold, 
thus  rendered  the  sole  standard  of  value.  All  debts 
private  and  public  will  be  legally  due  in  this  metal, 
and  all  burdens  will  be  greatly  increased. 

Within  the  last  year  or  two  the  predictions  of  M. 
Wolowski  may  seem  to  have  been  verified  in  some  degree. 
The  price  of  standard  silver,  which  was  at  one  time  62Jc£. 
per  ounce,  has  already  fallen  as  low  as  57^d.  while  the 
demonetization  of  silver  in  Germany  is  only  partially 
accomplished.  The  whole  effect  of  the  great  discoveries 
of  gold  was  only  to  raise  the  price  from  about  59fd.  to 
a  maximum  of  62  Jd.,  while  the  double  standard  system 
freely  worked ;  but  since  its  action  has  been,  as  we  shall 
see,  suspended,  the  minting  operations  of  a  single  govern- 
ment can  affect  the  price  in  a  greater  degree. 

Agreeing  that  M.  Wolowski  is  entirely  correct  in  an 
abstract  point  of  view,  and  is  justified  to  some  extent 
by  the  course  of  events,  I  must  adhere  to  the  opinion 
which  I  expressed  at  his  request  in  1868,  and  which  was 
partially  published  in  his  volume,  "L'Or  et  1' Argent " 
(p.  62). 

The  question  seems  to  be  entirely  one  of  degree,  and 
in  the  absence  of  precise  information  is  quite  indeter- 
minate. If  all  the  nations  of  the  globe  were  suddenly 


142  MONEY. 

and  simultaneously  to  demonetize  silver,  and  require 
gold  money,  a  revolution  in  the  value  of  gold  would  be 
inevitable.  But  M.  Wolowski  seems  to  forget  that  the 
nations  of  Europe  constitute  only  a  small  part  of  the 
population  of  the  world.  The  hundreds  of  millions  who 
inhabit  India  and  China,  and  other  parts  of  the  eastern 
and  tropical  regions,  employ  a  silver  currency,  and  there 
is  not  the  least  fear  that  they  will  make  any  sudden 
change  in  their  habits.  The  English  government  has 
repeatedly  tried  to  introduce  a  gold  currency  into  our 
Indian  possessions,  but  has  always  failed,  and  the  gold 
coins  now  circulating  there  are  supposed  not  to  exceed 
one  tenth  part  of  the  metallic  currency.  Although  the 
pouring  out  of  forty  or  fifty  millions  sterling  of  silver 
from  Germany  may  for  some  years  depress  the  price  of 
the  metal,  it  can  be  gradually  absorbed  without  difficulty 
by  the  eastern  nations,  which  have  for  two  or  three 
thousand  years  .received  a  continual  stream  of  the 
precious  metals  from  Europe.  If  other  nations  should 
one  after  another  demonetize  silver,  yet  the  East  may 
be  found  quite  able  to  absorb  all  that  is  thrust  upon  it, 
provided  that  this  be  not  done  too  rapidly. 

As  regards  the  gold  required  to  replace  silver,  it  does 
not  seem  to  be  evident  that  there  will  be  any  scarcity. 
The  adoption  of  the  gold  standard  does  not  necessarily 
involve  the  coining  of  much  gold,  for  some  countries 
may,  like  Norway,  or  Italy,  or  Scotland,  have  a  principal 
currency  almost  entirely  composed  of  paper.  In  other 
countries,  such  as  France  and  Germany,  the  cheque  and 
clearing  system,  which  we  shall  shortly  consider,  may 


THE  BATTLE  OF  THE  STANDARDS.         143 

be  gradually  introduced,  and  may  economize  to  a  great 
extent  the  use  of  the  metallic  currency.  The  current 
supply  of  gold  from  the  mines  is  still  very  large,  and 
we  cannot  be  sure  that  it  will  not  be  increased  by  fresh 
discoveries  in  New  Guinea,  South  Africa,  North  and 
South  America,  and  elsewhere. 

In  short,  then,  the  amount  of  supply  and  amount  of 
demand  of  both  the  precious  metals  depend  upon  a 
a  number  of  accidents,  changes,  or  legislative  decisions, 
which  cannot  be  in  any  way  predicted.  The  price  of 
silver  has  fallen  in  consequence  of  the  German  currency 
reforms,  but  it  is  by  no  means  certain  that  it  will  fall 
further  than  it  has  already  done.  That  any  great  rise 
will  really  happen  in  the  purchasing  power  of  gold  is 
wholly  a  matter  of  speculation.  We  cannot  do  more 
than  make  random  guesses  on  the  subject,  and,  as  a 
mere  guess,  I  should  say  that  it  is  not  likely  to  rise. 
Gold  has  since  1851  been  falling  in  value,  and  an  in- 
creased demand  for  gold  is  not  likely  to  do  more  than 
slacken,  or  at  the  most  arrest,  the  progress  of  depre- 
ciation. 

Disadvantages  of  the  Double  Standard. 

While  the  need  for  maintaining  the  system  of  the 
double  standard  is  a  matter  of  speculation,  the  in- 
conveniences of  the  system  are  beyond  doubt.  So 
long,  indeed,  as  its  operation  resulted  in  substituting 
a  beautiful  coinage  of  napoleons,  half-napoleons,  and 
five-franc  pieces  in  gold  for  the  old  heavy  silver  ecus, 


144  MONEY. 

there  was  no  complaint,  and  the  French  people  admired 
the  action  of  their  compensatory  system.  But  when,  a 
year  or  two  ago,  if  became  evident  that  the  heavy  silver 
currency  was  coming  back  again,  and  that  the  gold  coin 
was  likely  to  form  the  circulating  medium  of  other 
nations,  the  matter  assumed  a  different  aspect.  The 
French,  in  short,  have  been  educated  to  the  use  of  gold, 
and  they  are  not  likely  to  wish  for  the  return  of  a  cur- 
rency 15 J  times  as  heavy  and  cumbrous.  Moreover,  the 
change  involves  a  loss  to  the  community  in  general, 
who  receive  their  debts  in  a  metal  of  lessened  value; 
and  a  part  of  the  benefit  is  reaped  by  bullion-brokers, 
money-changers,  and  bankers,  for  whom  a  factitious 
trade  in  gold  and  silver  money  is  created  by  the  law  of 
the  7th  Germinal,  an  XI.  The  statesmen  of  the  countries 
still  maintaining  the  double  standard  must  have  reflected 
that  other  nations  showed  no  tendency  whatever  to 
adopt  the  same  system.  Thus,  if  France  were  to  con- 
tinue to  act  as  a  great  compensatory  currency  pendulum, 
she  would  bear  the  cost  and  inconvenience,  while  other 
nations  would  reap  equally  with  herself  the  advantage 
of  the  increased  steadiness  of  value  of  the  precious 
metals.  The  founders  of  the  Monetary  Convention 
and  the  advocates  of  International  Currency  never  in- 
tended to  sacrifice  themselves  to  this  extent  for  the 
benefit  of  the  world.  Accordingly  they  have  in  effect 
abandoned  the  double  standard. 

When  the  renewed  tendency  to  coin  silver  five-franc 
pieces  •  in  large  quantities  first  became  apparent,  the 
French  government  at  once  suspended  the  coinage. 


THE  BATTLE  OF  THE  STANDARDS.         145 

Subsequently  an  agreement  has  been  made  from  year  to 
year  between  France,  Switzerland,  Belgium,  and  Italy, 
that  each  country  shall  coin  only  a  fixed  quantity  of  silver 
ecus  proportional  to  its  population.  An  agreement  to  the 
same  effect  had  before  existed  as  regards  the  silver 
token  currency  of  two-franc  and  smaller  pieces ;  but  the 
coinage  of  ecus,  which  were  in  theory  standard  coins  and 
legal  tender  for  unlimited  amounts,  had  been  left  unre- 
stricted. The  result  of  the  limitation  of  coinage  now 
imposed  is  to  destroy  the  action  of  the  double  standard 
system.  Silver  being  coined  only  in  limited  quantities 
cannot  replace  and  drive  out  the  gold,  and  the  five-franc 
pieces,  although  worth  more  than  five  single  franc  pieces, 
are  worth  less  than  the  fourth  part  of  a  napoleon  or 
twenty-franc  piece  in  gold.  Although,  so  far  as  I  under- 
stand, they  remain  a  legal  tender  for  unlimited  amounts, 
they  cannot  be  had  in  unlimited  quantities,  and  are  thus 
practically  reduced  to  the  rank  of  token  coins.  By  the 
least  possible  legislative  change,  the  French  and  other 
governments  of  the  Monetary  Convention  have  thus 
practically  abandoned  the  double  standard,  and  have 
adopted  one  which  is  hardly  distinguishable  from  the 
composite  legal  tender  of  England  and  Germany.  Ever 
since  1810  copper  or  bronze  money  had  only  been  legal 
tender  in  France  to  the  amount  of  4  francs  99  centimes, 
and  since  the  fineness  of  the  smaller  silver  currency  was 
lowered,  this  money  also  was  restricted  as  a  legal  tender 
to  the  amount  of  50  francs  for  any  one  payment  between 
individuals,  or  to  the  amount  of  100  francs  for  any  pay- 
ment to  the  public  treasuries.  The  silver  ecu  forms  the 


146  MONEY. 

single  link  by  which  France  holds  to  the  double  standard, 
and  this  Link  is  half  severed. 

It  is  remarkable  that  the  changes  thus  effected  in  the 
money  of  Western  Europe  are  almost  the  same  as  those 
by  which  the  United  States  had  previously  abandoned 
the  double  standard.  Until  the  year  1853  the  silver 
dollar  of  the  United  States  mint  was  a  standard  coin  of 
unrestricted  legal  tender,  concurrently  with  the  gold 
coinage  of  eagles  and  their  fractions.  The  legal  ratio  of 
silver  to  gold  in  weight  indeed,  was  16  to  1,  instead  of 
15J  to  1  as  in  France.  More  silver  being  thus  required 
to  make  a  legal  payment  in  America  than  elsewhere, 
gold  was  naturally  preferred  for  this  purpose,  and  the 
silver  was  sent  abroad.  To  remedy  this  state  of  things 
the  government  of  "Washington,  in  1853,  reduced  the  half- 
dollar  and  smaller  silver  pieces  to  the  condition  of  token 
coins,  and  though  the  single  silver  dollar  pieces  remained 
ol  standard  weight,  they  were  coined  in  very  small 
quantities  and  were  practically  suppressed.  The  pre- 
dominance of  an  inconvertible  paper  currency  suspended 
the  question  of  metallic  money  for  a  time.  The  Coinage 
Act  of  the  United  States  Congress  came  into  operation 
on  1st  April,  1873,  and  constituted  the  gold  one-dollar 
piece  the  sole  unit  of  value,  whilst  it  restricted  the  legal 
tender  of  the  new  silver  trade  dollar,  and  of  the  half- 
dollar  and  its  subdivisions,  to  an  amount  not  exceeding 
five  dollars  in  any  one  payment.  Thus  the  double 
standard  previously  existing  in  theory  was  finally 
abolished,  and  the  United  States  was  added  +o  the  list  of 
nations  adopting  the  single  gold  standard. 


THE  BATTLE  OF  THE  STANDABDS.         147 


The  Monetary  Systems  of  the  World. 

On  reviewing  the  changes  which  have  recently  taken 
place  in  the  currencies  of  the  principal  nations,  we  notice 
an  unmistakable  tendency  to  the  adoption  of  gold  as  the 
measure  of  value,  and  the  sole  principal  medium  of 
exchange.  This  system  is  now  adopted  throughout  Great 
Britain  and  Ireland,  the  Australian  colonies,  and  New 
Zealand,  the  African  colonies,  and  many  of  the  minor 
possessions  of  the  British  empire.  It  has  existed  for 
some  time  in  Portugal,  Turkey,  Egypt,  and  in  several 
of  the  South  American  States,  such  as  Chili  and  Brazil. 
It  has  been  established  by  recent  legislation  in  the 
German  empire,  and  also  in  the  Scandinavian  king- 
doms of  Denmark,  Norway,  and  Sweden,  where  a  gold 
currency,  and  principal  legal  tender,  of  twenty-kroner 
pieces,  is  now  being  issued.  Even  Japan  has  imitated 
European  nations,  and  introduced  a  gold  coinage  of 
twenty,  ten,  five,  two,  and  one-yen  pieces,  the  yen  being 
only  three  per  mille  less  in  value  than  the  American 
gold  dollar.  The  new  fractional  money  of  Japan  is  to 
consist  of  fifty,  twenty,  ten,  and  five-sen  pieces  in  silver, 
the  sen  corresponding  to  a  cent,  and  forming  a  token 
money  at  the  fineness  of  eight  parts  in  ten. 

The  double  standard  is  still  theoretically  maintained 
in  France,  Italy,  Belgium,  Switzerland.  Spain,  Greece, 
and  Eoumania  have  also  in  recent  years  reformed  their 
currencies  in  imitation  of  the  French  system,  and  must, 
I  suppose,  be  considered  as  having  a  double  standard. 


148  MONEY. 

In  the  New  World,  Peru,  Ecuador,  and  New  Grenada, 
profess  to  have  the  same  system. 

A  few  years  ago  a  very  considerable  part  of  Europe 
might  have  been  classed  as  retaining  the  ancient  system 
of  a  single  silver  standard,  with  gold  coins  circulating, 
if  at  all,  at  varying  rates,  as  commercial  money.  The 
whole  of  Germany,  north  and  south,  together  with 
Austria,  the  Scandinavian  kingdoms,  and  Kussia, 
belonged  to  this  group.  Owing  to  the  changes  already 
mentioned,  only  Austria  and  Russia  now  clearly  repre- 
sent the  silver  standard  in  Europe,  and  even  Austria  has 
begun,  since  1870,  to  coin  gold  pieces  of  eight  and  four 
florins,  the  same  in  weight  and  fineness  as  the  French  gold 
twenty-  and  ten-franc  pieces.  By  an  imperial  decree,  dated 
Vienna,  12th  July,  1873,  it  is  ordered  that  the  French, 
Belgian,  Italian,  and  Swiss  gold  pieces  of  twenty,  ten, 
and  five  francs  shall  be  internationally  accepted  in  the 
Austro-Hungarian  empire  in  the  ratio  of  eight  gold 
florins  to  twenty  francs  of  gold  coin  of  the  other  nations. 
Nevertheless  the  silver  standard  practically  prevails 
over  a  large  part  of  the  world.  The  vast  populations 
of  India  and  China,  Cochin  China,  the  East  Indian 
Islands,  portions  of  Africa  and  the  "West  Indies,  Central 
America  and  Mexico,  have  a  currency  mainly  consisting 
of  silver  coins,  either  rupees  as  in  India,  sycee  bars  as  in 
China,  or  silver  dollars  as  in  many  other  places. 

The  gold  standard  has  thus  made  great  progress,  and 
it  will  probably  continue  to  progress.  When  the  United 
States  return  to  specie  payments,  they  will  certainly 
adopt  gold,  and  Canada,  whose  currency  can  hardly  be 


THE  BATTLE  OF  THE  STANDAEDS.          149 

classed  at  all  at  present,  must  do  the  same.     The  Latin 

nations,  having  once  abandoned  the  double  standard  in 

practice,  are  not  likely  to  return  to  it,  and  Austria  must 

follow.     An  extensive  monetary  change  is  hardly  to  be 

expected  in  Eussia,  although  it  is  very  remarkable  that 

in  the  province  of  Finland,  a  part  of  the  empire  highly 

distinguished  for  intelligence  and  good  education,  Eussia 

has  positively  admitted  the  franc  system  and  its  decimal 

subdivisions,  the  Finnish  marc  or  quarter-rouble  having 

the  precise  silver  weight  and  value  of  the  franc,  lira, 

and  peseta.     A  great  step  towards  a  future  international 

coinage  is  thus  effected.     Like  changes  are  impossible 

among  the  poor,  ignorant,  conservative  nations  of  India, 

China,  and  the  tropics  generally.     Hence  we  arrive,  as 

it  seems  to  me,  at  a  broad,  deep  distinction.    The  highly 

civilized  and  advancing  nations  of  Western  Europe  and 

North    America,   including    also    the    rising    states   of 

Australasia,  and  some  of  the  better  second-rate  states, 

such   as  Egypt,  Brazil,    and    Japan,  will   all  have  the 

gold  standard.     The  silver  standard,  on  the  other  hand, 

will  probably  long  be  maintained  throughout  the  Kus- 

sian  empire,  and  most  parts  of  the  vast  continent   of 

Asia;  also  in   some   parts   of  Africa,   and  possibly  in 

Mexico.     Excluding,  however,  these  minor  and  doubtful 

cases,   Asia  and  Eussia    seem   likely  to  uphold  .silver 

against  the  rest  of  the  world  adopting  gold.     In  G'JCJb  a 

result  there  seems  to  be  nothing  to  regret. 


CHAPTEK  XIII. 

TECHNICAL  MATTERS  RELATING  TO  COINAGE. 

IN  this  chapter  I  propose  to  consider  several  minor  points 
relating  to  the  construction  and  regulation  of  metallic 
currency.  Although  the  first  principles  of  money  are 
simple,  it  is  surprising  how  many  little  details  have  to 
be  considered  before  we  can  attain  the  maximum  of 
convenience.  We  have  already  discussed  the  selection 
of  metals  to  be  employed,  the  modes  in  which  they  may 
be  combined  into  a  system,  the  regulations  as  to  issue, 
etc.  In  this  and  the  following  chapters  we  still  have 
to  consider  the  character  of  the  alloy  which  is  best 
adapted  for  coining ;  the  most  convenient  sizes  for  coins ; 
the  method  of  counting  large  numbers  of  coins ;  the  cost 
at  which  the  currency  is  maintained;  the  advantages 
and  disadvantages  of  international  currency  of  money; 
the  difficulty  of  selecting  a  single  standard  unit ;  the  best 
series  of  multiples  and  submultiples  of  the  unit.  At  the 
most  I  cannot  in  this  work  attempt  to  give  more  than  a 
slight  sketch  of  the  complicated  questions  of  detail  which 
have  to  be  considered  before  making  any  change  in  the 
currency. 


TECHNICAL   MATTERS    RELATING    TO    COINAGE.  151 

The  Alloy  in  Coins. 

Although  we  commonly  speak  of  money  as  consisting 
of  gold  or  silver,  the  coins  actually  used  contain  alloys 
either  of  silver  and  copper,  or  of  gold  and  copper,  or  of 
gold,  silver,  and  copper.  Money  struck  in  nearly  pure 
gold  has  indeed  been  issued  both  in  early  and  recent 
times,  and  among  such  gold  coins  may  be  mentioned 
the  ancient  bezant,  the  recent  Austrian  ducat,  contain- 
ing 986  parts  of  gold  in  1000,  the  six-ducat  piece  of 
Naples,  containing  996  parts,  or  the  Tuscan  sequin, 
which  is  said  to  be  almost  pure  gold,  namely  999  parts 
in  1000.  Pure  gold  and  silver  are,  however,  soft  metals, 
so  that  even  if  they  were  found  naturally  in  the  pure 
state,  it  would  be  desirable  to  add  copper,  which  com- 
municates hardness  and  reduces  very  much  the  abrasion 
of  the  coins.  The  proportion  of  copper  to  be  adopted 
has  been  a  matter  of  frequent  discussion,  and  is  deter- 
mined partly  on  historical,  partly  on  scientific  grounds. 

The  exact  alloy  -employed  in  England  appears  to 
have  been  decided  by  the  system  of  weights  used.  Silver 
was  weighed  by  the  troy  pound  of  12  ounces,  of  which 
11  oz.  2  dwts.  were  to  be  pure  silver,  and  18  dwts.  copper. 
This  proportion,  which,  even  in  1357,  was  called  the 
"  old  right  standard  of  England,"  has,  in  spite  of  tem- 
porary depreciations,  been  maintained  to  the  present 
day,  and  corresponds  to  the  proportion  of  925  parts  in 
.1000.  Gold  having  been  weighed  by  the  ancient  and 
curious  system  of  carat  weights,  said  to  be  derived  from 
the  seeds  of  an  Abyssinian  plant,  the  unit  weight  of  gold 
8 


152  MONEY. 

was  24  carats,  of  which  22  were  to  be  of  pure  gold  and 
two  of  alloy.  This  ratio,  which  has  existed  for  many 
centuries,  is  decimally  expressed  by  916*66  parts  in 
1000. 

y?  The-  degrees  of  fineness  employed  in  one  country  or 

another  at  different  times  are  infinitely  various.  Silver 
has  been  coined  of  only  200  or  even  150  parts  in  1000, 
and  gold  of  750  or  700  parts ;  and  coins  exist  of  almost 
every  fineness  from  these  limits  up  to  nearly  pure  metal. 
The  only  standards  of  fineness  which  ,it  is  needful  to 
discuss  in  the  present  day  are  those  of  900  and  835 
which  are  proposed  for  general  adoption  in  international 
money.  A  few  years  ago,  indeed,  the  Berlin  government 
contemplated  the  adoption  of  a  standard  German  crown, 
consisting  of  ten  grams  of  pure  gold  and  one  gram  of 
alloy,  which  would  give  a  fineness  of  ^J  or  909*09.  This 
scheme  had  no  apparent  advantages,  and  was  fortunately 
abandoned  in  favour  of  the  present  German  coinage, 
which  is,  both  as  regards  gold  and  silver,  of  the  fineness 
of  900  parts  in  1000.  This  simple  decimal  proportion 
was  adopted  by  the  French  in  the  time  of  the  Revolution; 
it  has  been  extended  over  the  countries  belonging  to  the 
Monetary  Convention  of  1865,  and  over  Spain,  Greece, 
and  other  countries  which  have  more  or  less  imitated  the 
French  system.  It  was  long  ago  adopted  by  the  United 
States,  and  has  been  recently  introduced  into  the  gold 
currency  of  the  Scandinavian  kingdoms.  The  German 
government,  having  now  decided  to  accept  it,  the  simple 
decimal  fineness  is  established  in  all  the  more 'advanced 
countries,  excepting  England  and  some  of  her  colonies, 


TECHNICAL  MATTERS   RELATING   TO   COINAGE.  153 

and  a  few  nations,  such  as  Kussia,  Portugal,  and  Turkey, 
which  have  imitated  the  English  currency  and  coined 
gold  at  916-66. 

In  a  chemical  and  mechanical  point  of  view  the 
exact  degree  of  fineness  is  not  a  matter  of  importance. 
The  difference  between  -JJ  and  -f^  is  only  -^Q,  and 
though  the  often-quoted  experiments  of  Hatchett  were 
said  to  show  that  our  standard  was  slightly  better  than 
that  of  the  French,  the  difference  is  so  slight  and  ques- 
tionable as  to  afford  no  ground  for  preference.  The 
late  Master  of  the  Mint,  Professor  Graham,  was  quite 
willing  to  accept  the  standard  of  900,  both  for  gold  and 
silver,  and  there  are  really  no  reasons,  except  prejudice 
and  traditional  usage,  why  we  should  not  do  so  as  soon 
as  we  make  any  change  at  all.  Uniformity  in  the 
practice  of  nations  is  desirable  in  this  and  many  other 
points,  and  the  French  economists  lay  great  stress  upon 
this  question  of  fineness.  It  appears  to  me,  however,  that 
the  exact  degree  of  fineness  is  altogether  a  matter  of 
secondary  importance.  If  we  were  now  to  make  our 
sovereign  nine-tenths  fine,  we  should  have  to  raise  its 
weight  from  123'274  grains  to  125'557  grains,  and  the 
mixture  of  old  and  new  coins  would  entirely  frustrate 
the  method  of  counting  gold  money  by  the  scales  adopted 
in  all  banks.  We  must  certainly,  therefore,  postpone 
a  change  of  fineness  in  gold  until  we  make  a  more  con- 
siderable monetary  reform.  I  see  no  reason,  on  the 
other  hand,  why  the  mint  should  not  at  once  be  author- 
ized to  coin  silver  of  the  decimal  fineness  of  nine-tenths. 
This  would  merely  involve  an  imperceptible  increase  in 


154  MONEY. 

the  thickness  of  the  coins,  which  would,  in  the  case  of 
the  smaller  ones,  be  advantageous. 

The  fineness  of  835  parts  in  1000  was  adopted  by 
France,  as  already  stated  (p.  76),  in  order  to  reduce  the 
two-franc  and  smaller  pieces  to  the  rank  of  tokens,  with- 
out making  any  change  in  their  weight  and  appearance. 
There  is  no  special  objection  to  this  alloy,  which  is 
perfectly  coinable  and  of  good  colour;  but  it  is  not 
likely  that  it  will  be  adopted  by  the  English  government, 
instead  of  the  present  fineness  of  925  parts  in  1000 
of  our  silver  coinage,  and  does  not  need  further  discus- 
sion. It  may  be  added  that,  in  former  years,  the  alloy 
contained  in  gold  coins  consisted  in  part  of  silver,  which 
is  always  present  in  a  greater  or  less  quantity  in  native 
gold  wherever  it  is  found.  The  yellow  appearance  of 
guineas,  and  also  of  many  Australian  sovereigns,  was 
due  to  this  silver  alloy ;  but  all  such  silvery  gold  coins 
are  rapidly  withdrawn  now  by  gold  refiners,  who  can 
profitably  separate  the  silver.  The  very  remarkable 
invention  of  Mr.  F.  B.  Miller,  of  the  new  Melbourne 
mint,  enables  this  separation  to  be  effected  with  great 
ease,  and  at  small  cost,  almost  on  the  gold  fields.  It 
is  only  requisite  to  melt  the  silvery  gold,  and  pass  a 
current  of  chlorine  gas  into  it,  to  obtain  the  silver  in  the 
state  of  chloride,  which  is  readily  separated  from  the 
gold  and  reduced  to  the  metallic  state.  It  is  a  further 
advantage  of  this  simple  process  that  all  gold  so  treated 
is  freed  from  accidental  impurities,  and  rendered  per- 
fectly malleable  and  fit  for  coining.  One  of  the  great 
difficulties  of  mint  masters,  the  brittleness  of  gold,  has 


TECHNICAL   MATTEES   BELATING    TO    COINAGE.  155 

thus  been  entirely  overcome.  A  full  description  of 
the  process,  as  employed  at  the  English,  Australian, 
American,  Norwegian,  and  other  mints,  will  be  found  in 
the  First  Annual  Eeport  of  the  Deputy  Master  of  the 
English  Mint  (p.  93),  and  in  the  Second  Eeport  (p.  33), 
or  in  the  specification  as  printed  by  the  Patent  Office. 

The  Size  of  Coins. 

There  appear  to  be  pretty  well  denned  limits  of  size 
within  which  we  should  confine  ourselves  in  the  striking 
of  money.  Coins  must  not  be  so  small  that  they  can  be 
easily  lost,  or  can  with  difficulty  be  picked  up.  The  rule 
seems  to  be  that  the  coin  should  cover  the  whole  area  of 
contact  between  the  points  of  the  thumb  and  first  finger ; 
and  though,  of  course,  this  area  will  differ  with  men, 
women,  and  children,  we  should  err  rather  in  excess 
than  defect.  On  this  ground  I  should  condemn  the 
English  threepenny  silver  piece  as  too  small,  and, 
on  the  same  ground,  the  Swedish  ten-ore  piece,  the 
American  one-dollar  gold  piece,  the  former  Papal  one- 
scudo  piece,  must  be  pronounced  inconveniently  small. 
The  Erench  five-franc  gold  piece  of  the  later  type,  the 
English  fourpenny  piece,  the  Canadian  five-cent  piece, 
or  the  new  silver  piece  of  twenty  pfennigs,  now  being 
introduced  into  the  German  empire,  must  be  considered 
the  smallest  coins  to  be  tolerated.  The  thickness  of  the 
coins,  however,  must  be  taken  into  account  as  well  as 
the  diameter.  The  moneys  issued  from  the  United 
States  mint  are  thicker  than  usual,  and  though  this 


156  MONEY. 

tends  to  give  some  of  the  coins  a  clumsy  appearance, 
yet  they  seem  to  me  all  the  more  convenient  to  use. 
The  French  have  gone  to  the  opposite  extreme,  the  five- 
franc  gold  piece  being  very  thin,  and  having  a  diameter 
of  nearly  seventeen  millimetres,  while  the  American 
dollar,  which  is  more  valuable,  has  a  diameter  of  little 
more  than  thirteen  millimetres.  The  maximum  size  of 
coins  has  probably  been  determined  chiefly  with  regard 
to  the  practical  difficulty  of  coining.  The  largest  coin 
which  has  been  very  widely  circulated  is  perhaps  the 
Maria  Theresa  dollar,  measuring  1*6  inches,  or  41  milli- 
metres, in  diameter ;  the  other  most  common  species  of 
dollar  are  somewhat  smaller,  such  as  the  Spanish  dollar 
of  1858,  measuring  37  millimetres;  the  American  dollar, 
1846,  the  Spanish  dollar,  1870,  the  Mexican  dollar,  1872, 
measuring  from  37  to  38  millimetres.  The  average 
diameter  of  the  dollars  which  I  have  examined  is  38J 
millimetres,  or  almost  exactly  an  inch  and  a  half.  In 
their  larger  gold  coins,  the  Americans  maintain  unusual 
thickness.  Thus  the  double  eagle,  though  in  value  equal 
to  more  than  four  pounds,  has  a  diameter  of  only  34 
millimetres,  or  1J  inch.  The  beautiful  four-ducat  piece 
of  Austria  has  a  larger  diameter  than  the  double  eagle, 
though  it  contains  less  than  half  the  quantity  of  fine 
gold. 

The  Wear  of  Coin. 

Some  attention  must  be  given  to  the  abrasion  which 
coins  suffer  in  use.  In  the  case  of  gold  coins  the  loss  of 
metal  thus  occasioned  is  of  importance,  and  leads,  as 


TECHNICAL   MATTERS   RELATING   TO   COINAGE.  157 

we  have  seen  (p.  Ill),  to  a  gradual  depreciation  of  the 
currency.  As  coins  pass  frequently  from  hand  to  hand, 
the  amount  of  metal  abraded  will  be  nearly  the  same  as 
regards  each  coin  of  the  same  type,  and  each  year  of 
circulation.  The  loss  will  be  proportional  to  length  of 
wear.  Now  the  English  law  allows  a  sovereign  to  be 
legal  tender  so  long  as  it  weighs  122' 5  grains,  or  more  ; 
and  the  difference  between  this  and  the  full  standard 
weight,  or  0*774  grain,  represents  the  margin  allowed  for 
abrasion.  Now,  from  experiments  described  in  a  paper 
read  to  the  London  Statistical  Society  in  November,  , 
1868  ("Journal  of  the  Statistical  Society,"  Dec.,  1868,  vol. 
xxxi.  p.  426),  I  estimated  the  average  wear  of  a  sovereign 
for  each  year  of  circulation  at  0*043  grain  (0*00276 
gram).  It  would  follow  that  a  sovereign  cannot  in 
general  circulate  more  than  about  eighteen  years  without  f 
becoming  illegitimately  light.  This  length  of  time,  then, 
would  constitute  what  may  be  called  the  legal  life  of  a 
sovereign.  It  has  since  been  shown  by  Dr.  Farr,  that 
certain  considerations  overlooked  in  my  calculations 
would  reduce  this  estimate  of  the  legal  life  to  fifteen  years. 
Mr.  Seyd,  on  the  other  hand,  thinks  that  twenty  years 
might  be  adopted  as  the  legal  age  of  the  sovereign. 

When  we  compare  the  currencies  of  different  countries, 
it  becomes  evident  that  the  rate  of  abrasion  will  depend 
partly  upon  the  rapidity  and  constancy  of  circulation, 
partly  upon  the  size  and  character  of  the  coins.  Accord- 
ing to  the  inquiries  of  M.  Feer-Herzog  in  Switzerland, 
the  average  loss  of  the  twenty-franc  piece  amounts  to 
200  millionths  of  the  full  weight  in  each  year,  while 


158  MONEY. 

with  the  ten  and  five-franc  gold  pieces,  the  corresponding 
amounts  are  430  and  620  millionths.  My  own  weighings 
of  English  gold  show  that  the  sovereign  loses  about  350 
millionths  in  each  year  of  wear,  and  the  half-sovereign 
no  less  than  1120  millionths,  or  more  than  one-tenth  per 
cent,  per  annum.  As  the  English  coins  are  heavier  than 
the  napoleon  and  half-napoleon,  they  should  suffer  less 
loss  in  proportion.  M.  Feer-Herzog  attributes  the  ex- 
cessive loss  manifested  by  English  money  to  the  softer 
character  of  the  English  alloy  of  eleven-twelfths.  This 
cause  may  contribute  something  to  the  effect  observed, 
but  it  is  probable  that  the  greater  rapidity  of  the 
circulation  in  England  is  the  main  ground  on  which 
so  great  a  difference  can  be  explained. 

The  rate  of  wear  of  a  coin  depends  greatly,  it  will 
be  seen,  upon  its  size.  A  large  coin,  like  an  English 
crown,  a  French  silver  ecu,  or  an  American  double 
eagle,  suffers  comparatively  little  wear,  because  the  sur- 
face increases  much  less  rapidly  in  proportion  than  the 
contents  of  the  coin.  The  slight  degree  of  abrasion  of 
the  various  silver  dollars  maybe  one  cause  of  their  popu- 
larity in  the  East.  Smaller  silver  money  loses  much 
more.  Thus,  according  to  experiments  made  at  the  mint 
in  1833,  the  loss  per  cent,  per  annum  on  half-crowns  is 
about  2s.  6cZ.,  on  shillings  4s.,  and  on  sixpences  7s.  6d., 
or  decimally  "125,  '200,  and  '375  per  cent,  respectively. 
This  loss  becomes  considerable  in  the  course  of  years,  as 
may  readily  be  seen  in  the  case  of  worn  sixpences.  The 
average  loss  of  weight  of  the  old  silver  coins  melted  at  the 
mint,,  seems  to  be  about  16£  per  cent.,  but  this  loss  is 


TECHNICAL  MATTERS   KELATING   TO    COINAGE.  159 

more  than  covered  by  the  profit  upon  the  issue  of  new 
silver  coin.  Experiments  were  made  at  the  mint  in  1798 
upon  the  weight  of  English  silver  coins  then  in  circula- 
tion. It  was  found  that  the  deficiency  amounted  in 
crowns  to  3'31  per  cent.,  and  in  half-crowns,  shillings, 
and  sixpences  respectively,  to  9'90,  24'60,  and  38 '28  per 
cent.  In  the  recent  withdrawal  of  the  old  silver  money 
of  South  Germany,  it  was  found  to  have  lost  on  the 
average  about  one-fifth  part  of  its  weight. 

To  reduce  the  loss  arising  from  the  wear  of  gold  coin, 
it  might  seem  to  be  desirable  to  issue  large  gold  pieces.  ' 
The  Americans  used  to  have  a  great  circulation  of 
eagles  and  double  eagles,  the  latter  especially  being  very 
handsome  medal-like  pieces.  In  former  days  many 
large  gold  coins,  such  as  the  caiiino,  dobraon,  doubloon, 
quadruple  pistole,  and  the  double  ryder  were  current.  A 
serious  objection,  however,  to  such  coins  as  a  double  , 
eagle,  one-hundred  franc-piece,  or  five-pound  piece,  is 
that  they  can  readily  be  falsified.  Small  holes  can  be 
drilled  through  them,  and  then  concealed  by  hammering. 
The  application  of  the  file,  the  sweating  bag,  or  cylinder, 
or  of  chemical  reagents,  would  probably  be  safer  with 
large  than  with  small  coins.  In  some  cases  a  double 
eagle  has  been  completely  sawn  into  two  flat  discs,  which 
were  afterwards  neatly  soldered  together  again  with  a 
plate  of  platinum  between  to  give  the  requisite  weight. 
It  might  have  been  thought  that  the  labour  and  skill 
re  quired  to  effect  such  falsification  would  have  been  better 
remunerated  in  some  honest  employment;  but,  accord- 
ing to  the  reports  of  the  Director  of  the  United  States 


160  MONEY. 

Mint,  there  is  evidence  to  show  that  the  practice  is  profit- 
able. It  is  proposed  to  prevent  this  falsification  by 
reducing  the  thickness  of  the  double  eagle,  and  also 
making  it  somewhat  dish  shaped ;  but  it  would  be  better 
to  abandon  the  issue  of  such  large  gold  money,  as  has  long 
been  done  in  England  and  France.  Experience  shows 
that  sovereigns,  napoleons,  half-eagles,  and  gold  coins  of 
the  same  size  are  not  fraudulently  treated,  nor  are  silver 
coins  ever  debased  in  the  way  described. 

In  order  to  diminish  the  abrasion  of  coins  as  far  as 
possible,  the  design  and  legend  should  be  executed  with 
the  least  possible  relief  consistent  with  perfect  definition, 
and  the  head  of  the  monarch,  or  other  personage,  should 
not  protrude.  In  this  and  most  other  respects  the 
sharply  defined  flat  design  upon  the  English  florin  is 
much  superior  to  the  high  rounded  ornaments  of  the 
old  crown,  half-crown,  and  shilling.  The  French  mints 
seem  to  be  very  successful  in  the  execution  of  dies,  all 
the  coins,  gold,  silver,  and  bronze  struck  by  them  having 
flat  yet  admirably  executed  devices.  Perhaps  the  most 
beautiful  recent  coin  which  I  have  seen  is  the  new 
twenty-franc  gold  piece  struck  during  1874  for  Hungary, 
the  engraving  of  the  die  being  excellent.  The  new 
Scandinavian  gold  pieces  of  five-specie  dollars,  or  twenty 
kroner,  are  also  well  executed. 


TECHNICAL   MATTERS   KELATING   TO   COINAGE.  161 

Methods  of  Counting  Coins. 

To  count  large  quantities  of  coin  by  tale,  piece  after 
piece,  is  not  only  a  tedious  operation,  but  very  uncertain 
as  regards  accuracy.  Several  methods  have  been  de- 
vised to  facilitate  the  operation.  In  mints,  the  Bank 
of  England,  and  other  establishments,  where  vast 
quantities  of  coin  are  treated,  counting  boards  are  used.  >° 
Similar  boards  have,  indeed,  been  used  from  time  im- 
memorial in  some  parts  of  India  by  money-changers  and 
tradesmen.  These  consist  of  simple  flat  trays,  with 
several  hundred  depressions  regularly  arranged,  and  of 
such  a  size  that  one  coin  will  exactly  fit  into  each 
depression.  Handfuls  of  uniform  coins  are  thrown  on 
to  the  board,  and  shaken  over  it,  until  most  of  the  holes 
are  filled ;  the  remaining  holes  are  then  filled  up  one 
after  another  by  hand.  The  number  contained  upon 
the  board  is  then  known  with  infallible  accuracy,  and 
at  the  same  time  it  is  very  easy  to  examine  the  coins, 
and  detect  any  counterfeit,  defective,  or  foreign  pieces. 
By  the  use  of  such  boards,  bags  of  equal  numbers  of 
any  coinage  are  readily  made  up  with  great  certainty. 

In  English  banks  it  is  requisite  to  count  out  con- 
siderable sums  in  gold  coin  with  rapidity  for  the 
payment  of  cheques  over  the  counter,  or  to  verify  the 
number  of  sovereigns  paid  in  on  deposit.  For  this 
purpose  balances  are  employed,  with  weights  prepared 
so  as  to  be  equivalent  to  5,  10,  20,  30,  50,  100,  '200,  and 
300  sovereigns.  Any  sum  which  is  a  multiple  of  five 
sovereigns  can  thus  be  rapidly,  and  almost  infallibly, 


162  MONEY. 

weighed  out  in  a  few  seconds,  provided  that  the  coins 
are  not  too  old  and  worn.  An  error  of  a  sovereign 
is  sometimes  possible  in  a  large  sum,  on  account  oir 
deficiency  of  weight.  In  the  case  of  half-sovereigns,  this 
process  is  seldom  to  be  depended  upon,  owing  to  the  very 
considerable  lightness  of  the  coins.  This  uncertainty 
in  weighing  is  one  of  several  serious  inconveniences 
which  arise  from  the  defective  state  of  our  gold  coinage. 

Half  sovereigns,  however,  and  in  fact  all  coins  which 
are  approximately  equal  to  each  other  on  the  average, 
can  be  rapidly  counted  on  the  balance  by  the  ingenious 
method  of  duplication.  Any  convenient  number,  for 
instance,  fifty  coins,  being  counted  into  one  scale, 
an  equal  number  may  be  made  to  balance  them, 
without  counting,  in  the  other  scale.  The  two  equal 
lots  being  united,  one  hundred  more  coins  may  be 
made  to  counterbalance  them,  and  by  a  second  union 
we  get  two  hundred  coins.  We  may  repeat  this  duplica- 
tion, if  the  balance  will  bear  the  weight,  and  afterwards, 
using  one  lot  of  coins  as  the  fixed  weight,  may  go  on 
counting  out  lot  after  lot  equal  to  it  in  weight  and 
number. 

When  neither  balance  nor  counting  board  is  available, 
coins  may  be  counted  out  into  little  piles  of  ten,  fifteen, 
or  twenty.  Placing  these  piles  alongside  each  other  on 
a  flat  board,  it  is  easy  to  detect  any  inequality  of  height 
by  the  unassisted  eye,  or  by  a  straight  edge  laid  along 
the  top.  A  mistake  in  counting  will  thus  be  generally 
made  manifest. 


TECHNICAL   MATTERS   BELATING   TO   COINAGE.  163 


Cost  of  the  Metallic  Currency. 

Calculations  of  some  interest  may  be  made  as  to  the 
cost  which  falls  upon  the  public  in  one  way  or  another, 
owing  to  the  use  of  metallic  money.  Speaking  first  of 
the  subordinate  coins  of  silver  and  bronze,  the  govern- 
ment make  a  profit  by  their  manufacture,  owing  to  the 
reduced  weight  at  which  they  are  issued  as  tokens. 
Standard  silver  can  usually  be  bought  by  the  mint  for 
55.  per  standard  ounce.  It  is  issued  to  the  public  at 
the  rate  of  5s.  Qd.  per  ounce,  so  that  the  government 
receives  a  seignorage  of  at  least  nine  per  cent,  on  the 
nominal  value  of  the  coin  issued.  The  average  coinage 
of  silver  at  the  English  mint  during  the  last  ten  years 
has  been  £546,580,  upon  which  the  seignorage  would  be 
about  £49,200  per  annum.  On  the  other  hand,  the  mint 
has  to  buy  back  worn  silver  coinage  at  its  nominal  value, 
and  in  recoining  such  money  there  is  a  loss,  which,  on 
the  average  of  the  last  ten  years  (1864-73)  has  been 
£16,700,  leaving  a  net  annual  profit  of  £32,500,  no 
account  being  taken  of  the  cost  of  the  mint  establish- 
ment. At  present  the  price  of  silver  is  not  above 
4s.  Wd.  per  ounce,  so  that  the  seignorage  is  about  12 
per  cent.,  and  the  profit  on  coining  silver  proportionately 
greater. 

We  may  look  at  this  matter  in  another  way,  by 
regarding  the  seignorage  as  so  much  money  funded  to^ 
bear  interest,  to  meet  the  cost  of  withdrawing  the  coin, 
when  worn  out,  say  thirty  years  subsequently.     Now  a 


164  MONEY. 

pound  bearing  3J  per  cent,  compound  interest,  becomes 
in  thirty  years  2*61  pounds,  so  that  the  9  per  cent,  of 
seignorage  will  have  multiplied  to  23*5  per  cent.  But 
the  actual  deficiency  of  weight  of  the  silver  coin  with- 
drawn is,  on  the  average,  only  16J  per  cent.,  so  that, 
without  taking  into  account  the  considerable  number  of 
coins  which  must  be  lost,  exported,  melted,  hoarded, 
sunk  in  the  sea,  or  otherwise  finally  withdrawn  from  cir- 
culation, there  is  a  profit  on  the  issue  of  the  silver  coin 
under  the  present  regulations. 

In  the  issue  of  bronze  money  there  has  been,  as 
before  stated,  a  profit  of  £270,000,  against  which  must 
be  set  off  the  possible,  but  uncertain,  cost  of  recoining 
a  light  token  currency  at  some  future  time. 

The  cost  of  the  currency  is  made  up  of  four  principal 
items :  the  loss  of  interest  upon  the  capital  invested  in 
the  money,  the  loss  by  the  abrasion  of  gold  coins,  the 
expenses  of  the  mint,  and  lastly  the  casual  loss  of  coins. 
The  last  item  is  of  wholly  unknown  amount ;  the  other 
items  may  be  estimated  as  follows.  We  may,  roughly 
speaking,  assume  the  gold  currency  of  the  kingdom  to 
consist  of  84,000,000  of  sovereigns  and  32,000,000  of 
half-sovereigns,  the  total  value  being  100,000,000  ster- 
ling. The  sovereigns  lose  annually  on  the  average  0*043 
grain  each,  giving  an  annual  loss  of  about  £30,000; 
the  half-sovereigns  lose  0'069  grain  each,  producing  a 
loss  of  £18,000.  The  loss  of  interest,  however,  is  a  far 
more  serious  matter.  The  whole  value  of  the  metals 
employed  in  the  currency  is,  roughly  speaking,  as 
follows : — 


TECHNICAL   MATTERS   RELATING   TO    COINAGE.  165 

Gold  coin  in  circulation 100  millions 

Bullion  in  the  Bank  of  England     .    .  15       „ 

Silver  coin 15       „ 

Bronze  coin 1 


Total     ....     131J  millions. 

The  interest  on  this  sum  at  3  J  per  cent  is  no  less  than 
£4,262,000. 

The  cost  of  the  mint  establishment  is  about  £42,000 
annually.  The  following  statement,  then,  shows  the 
aggregate  cost  of  the  metallic  currency  so  far  as  it  can 
be  estimated. 

Loss  of  interest £4,262,000 

Wear  of  coin     . 48,000 

Mint  establishment 42,000 


£4,352,000 

From  this  amount  ought  to  be  subtracted  the  profit 
which  the  mint  makes  out  of  the  seignorage  upon  silver 
and  bronze  coins ;  but  we  may  set  oif  this  profit  against 
the  wholly  unknown  amount  which  the  public  loses  by 
the  accidental  dropping  of  coins. 


166  MONEY. 


CHAPTER  XIV. 

INTERNATIONAL  MONEY. 

IN  a  book  upon  money  written  in  the  present  day, 
reference  must  certainly  be  made  to  the  scheme  put 
forward,  and  even  the  steps  accomplished,  towards  a 
world-wide  system  of  International  Money.  Much  time 
will  no  doubt  pass  before  such  a  notion  is  realized,  and 
the  recent  retrograde  action  of  the  German  government 
tends  to  retard  so  great  an  achievement  of  advancing 
civilization.  Yet  in  all  our  changes  and  discussions  of 
monetary  matters  we  ought  to  bear  in  mind  the  eventual 
introduction  of  a  uniform  monetary  system.  We  may 
surely  look  for  a  gradual  amelioration  in  the  relations 
of  nations,  though  wars  cannot  yet  be  avoided.  We 
have  international  copyright,  extradition  of  criminals, 
maritime  codes  of  signals,  postal  conventions,  treaties 
for  lessening  the  horrors  of  war.  Nations  have  long 
since  ceased  to  be  isolated  bodies  wishing  evil  to  all  their 
neighbours ;  and  as  free  trade  becomes  everywhere  pre- 
dominant, and  communication  by  means  of  railway, 
steamboat,  telegraph,  post,  and  newspaper  continually 
increases,  we  may  look  for  the  time  when  all  people  will 


INTERNATIONAL    MONEY.  167 

seek  to  break  down,  as  far  as  possible,   the  barriers 
between  one  family  and  another  of  the  human  race. 

I  will  first  of  all  state  the  advantages  which  may  be 
expected  to  accrue  from  an  international  system  of 
metallic  money,  and  will  then  describe  in  succession  the 
corresponding  possible  disadvantages,  the  progress  which 
has  already  been  made  towards  the  simplification  of 
monetary  systems,  the  principal  schemes  set  forth,  and 
their  comparative  merits  and  demerits. 

Advantages  of  International  Money. 

Short-sighted  people  have  objected  to  all  schemes  of 
international  money,  that  the  object  in  view,  if  ever 
realized,  would  only  save  trouble  to  the  comparatively  few 
people  who  travel  from  nation  to  nation.  This  is  the 
least  of  all  the  benefits  which  the  uniformity  of  money 
would  confer.  I  am  disposed  to  put  in  the  first  place  the 
immense  good  which  would  arise  from  facility  in  under- 
standing all  statements  of  accounts,  prices,  and  statistics, 
when  expressed  in  terms  of  a  uniform  measure  of  value. 
To  the  statistician  it  is  almost  intolerable  to  meet  with 
tables  of  information,  variously  expressed  in  francs, 
pounds,  dollars,  thalers,  metres,  yards,  ells,  hundred- 
weights, kilograms.  The  labour  of  statistical  inquiry  is 
sufficiently  great  without  the  preliminary  labour  of  re- 
ducing great  masses  of  figures  to  a  common  unit.  To 
the  merchant,  or  man  of  business,  the  variety  of  moneys 
and  measures  is  equally  perplexing.  In  many  places  the 
value  of  the  currency  is  not  certainly  known,  and  only 


168  MONEY. 

those  who  happen  to  have  special  knowledge  of  a  locality, 
and  the  money  and  measures  there  employed,  can  venture 
to  trade  with  it.  The  difference  of  monetary  systems, 
again,  renders  calculations  relating  to  the  foreign  ex- 
changes very  complex,  so  that  profit  falls  to  those  who 
have  acquired  skill  in  calculations  of  the  kind. 

In  the  second  place,  the  actual  adjustment  of  the 
foreign  exchanges  would  be  rendered  more  prompt  and 
perfect  when  the  coin  of  one  country  could  be  transferred 
directly  into  the  circulation  of  another  country.  One 
result  of  international  currency  would  be  that  the  pre- 
cious metals  would  be  held  more  in  the  form  of  coin. 
At  the  present  time,  what  is  coined  by  one  country  has 
often  to  be  melted  up  and  recoined  by  another,  although 
to  some  extent  the  principal  kinds  of  coin,  English 
sovereigns,  American  eagles,  French  napoleons,  Mexican 
dollars,  are  held  by  banks  and  bought  and  sold.  With 
a  single  system  of  coins,  all  stocks  of  gold  and  silver 
would,  as  a  general  rule,  be  kept  in  the  coined  state, 
ready  to  go  into  circulation  at  any  moment.  Some  small 
savings  would  accrue  from  the  less  amount  of  mintage 
required,  though  this  is  a  very  secondary  matter.  One 
of  more  importance  is  the  lessened  opportunities  of  profit 
which  there  would  be  for  bullion  brokers  and  others,  who 
trade  upon  the  difficulties  of  conducting  the  bullion  traffic 
in  the  present  state1  of  things.  Nor  is  the  saving  of 
trouble  and  loss  to  travellers  a  matter  of  indifference. 
As  international  communication  increases,  the  number 
of  travellers  will  increase,  and  we  ought  to  break  down, 
as  far  as  possible,  all  factitious  difficulties. 


INTERNATIONAL    MONEY.  169 

One  benefit  of  international  money  which  has  been 
insufficiently  noticed,  is  the  improvement  which  its  adop-  ? 
tion  would  probably  effect  in  the  currencies  of  minor  and 
half-civilized  states.  In  many  parts  of  the  world  there 
is  still  a  mixture  of  coins  of  various  and  uncertain  value  ; 
and  as  long  as  the  principal  nations  coin  money  on 
totally  different  systems,  the  coins  will  circulate  else- 
where and  make  confusion.  .Already  for  a  long  time 
the  practically  international  currency  of  the  Mexican 
dollar  has  been  a  matter  of  great  convenience;  and 
where  it  is  the  unit  of  value,  merchants  know  on  what 
basis  they  are  making  contracts.  Now,  if  all  the  leading 
nations  combined  to  issue  coins  of  one  uniform  series  of 
weight  and  sizes,  these  would  by  degrees  form  the  cur- 
rencies of  non-coining  states,  and  would  effect  a  reform 
in  the  most  remote  parts  of  the  world. 

Disadvantages  of  International  Money. 

There  are,  no  doubt,  certain  evils  which  might  possibly 
arise  from  the  circulation- of  money  between  nation  and 
nation.  One  government,  for  instance,  might  coin  money  ^p 
slightly  inferior  to  the  proper  standard,  and  such  money, ' 
once  introduced,  would,  in  virtue  of  Gresham's  law,  be 
difficult  to  dislodge.  The  French  mint  has  been  in  fault 
in  this  respect.  French  gold  coin,  when  carefully  assayed, 
is  found  to  have  a  fineness  of  898  or  899  parts  in  1000, 
instead  of  900  parts.  There  is,  indeed,  a  mint  remedy 
of  two  parts,  so  that  the  coin  was  legally  issued ;  yet  the 
mint  authorities  have  taken  advantage  of  this  remedy  in 


170  MONEY. 

an  improper  way.  On  the  average,  fhe  coins  issued  by  any 
mint  ought  to  have  almost  the  exact  standard  fineness, 
and  the  divergence  allowed  under  the  name  of  remedy  is 
only  intended  to  cover  accidental  faults  of  workmanship 
in  particular  coins,  and  not  an  intentional  average  diver- 
gence from  the  standard. 

It  is  hardly  to  be  supposed  that  a  state  issuing  money 
under  international  obligations  would  wish  to  make  a 
profit  of  one  or  two  parts  in  a  thousand  in  this  way.  To 
secure  uniformity,  it  would  be  desirable  for  the  assayers 
and  officers  of  different  mints  to  meet  and  agree  upon  a 
common  standard  process,  and  uniform  trial  plates. 
Experience  does  not  show  that  one  nation  need  distrust 
the  faithfulness  of  another  in  matters  of  coining.  We 
do  not  look  upon  Spain  and  Mexico  as  models  of  financial 
integrity,  yet  so  faithfully  used  the  mints  of  those  coun- 
tries to  maintain  the  standard  of  weight  and  fineness 
in  the  issue  of  silver  dollars,  that  these  coins  have  for  a 
hundred  years  past  been  received  by  tale  almost  without 
question  in  most  parts  of  the  world,  and  were  at  one  time 
made  current  in  England.  The  possibility  of  inter- 
national currency  is  proved  by  the  fact  that,  without  any 
international  treaties,  the  coins  of  several  nations  are 
recognized  as  a  legal  tender  elsewhere.  This  is  the  case 
with  English  sovereigns,  not  only  in  the  British  colonies 
and  possessions,  but  also  in  Portugal,  Egypt,  Brazil,  and 
probably  elsewhere.  The  napoleon  has  circulated  freely 
in  most*  parts  of  Europe.  The  ducat  of  Holland  has  also 
been  a  highly  esteemed  coin;  and  of  the  wide  circulation 
of  several  species  of  dollars  I  have  frequently  spoken. 


INTERNATIONAL   MONEY.  171 

Conflict  of  Monetary  Systems. 

The  chief  difficulty  in  establishing  an  international 
money,  arises  from  the  fact  that  there  are  several  great 
nations,  the  French,  English,  Americans,  and  Germans, 
each  with  its  own  system  of  money,  which,  from  motives 
worthy  and  unworthy,  it  is  unwilling  to  give  up.  There 
is  no  overpowering  advantage  which  marks  out  any  one 
of  these  systems  on  its  own  merits  as  distinctly  the  best. 
There  is  accordingly  a  balance  of  power  which  produces  a 
dead  lock.  Each  of  the  three  first-named  nations  has 
much  to  say  in  favour  of  its  own  system.  The  French 
system,  founded  on  the  franc,  is  an  eminently  perfect 
decimal  coinage,  and  has  the  prestige  of  being  recognized 
as  international  money  in  Belgium,  Switzerland,  and 
Italy,  besides  being  adopted  with  international  currency 
as  regards  gold  in  Austria,  and  without  it  as  regards 
silver  in  Spain,  Greece,  and  some  minor  states. 

The  English  may  very  properly  urge  that,  though  the 
subdivision  of  the  pound  is  not  to  be  recommended,  the 
pound  sterling  is  itself  an  excellent  unit  of  value.  It 
is  the  largest  existing  monetary  unit,  and  on  a  gold 
basis,  so  that  it  seems  to  be  peculiarly  suitable  for  the 
growing  wealth  of  nations.  Though  recognized  only  in 
a  small  corner  of  Europe,  namely,  Portugal,  we  must 
remember  that  Europe  is  rapidly  ceasing  to  be  the  ex 
elusive  centre  of  trade  and  civilization.  In  the  Austra 
Han,  Polynesian,  and  African  colonies  are  growing  states 
which  will  make  their  might  felt  ere  long,  and  they 
adhere  to  the  pound.  The  world- wide  extension  of  British 


172  MONEY. 

commerce   and   British  shipping  makes  the   sovereign 
known  in  all  the  ports  of  the  world. 

On  their  part,  however,  the  Americans  might  have 
much  to  say  in  favour  of  the  dollar.  It  is  decimally 
divided,  and,  as  we  shall  see,  in  the  most  convenient 
manner.  It  corresponds  to  the  coins  which  have  for 
two  or  three  centuries  been  most  widely  circulated  and 
treated  as  units  of  account,  so  that  there  is  much  weight 
of  experience  in  its  favour.  But,  above  all,  it  is  firmly 
adopted  as  the  money  of  a  nation,  which,  as  far  as  human 
wisdom  can  penetrate  the  future,  is  destined  to  be  the 
most  numerous,  rich,  and  powerful  in  the  world.  That 
nation,  which  has  arisen  from  the  best  stock  of  England, 
has  absorbed  much  of  the  best  blood  of  other  European 
nations,  and  has  inherited  the  richest  continent  in  the 
world,  must  have  an  importance  in  coming  times  of 
which  even  Americans  are  barely  conscious. 

International  Monetary  Negotiations. 

It  is  quite  impossible  that  I  should  in  this  brief  work 
give  any  sufficient  sketch  of  the  long  series  of  discussions, 
meetings,  congresses,  associations,  negotiations,  and 
conventions  which  resulted  in  the  actual  establishment 
of  an  international  money  among  the  nations  of  western 
continental  Europe.  I  must  refer  the  reader,  desirous 
of  more  information,  to  the  excellent  pamphlet  of  the 
eminent  actuary,  Mr.  Frederick  Hendriks,  which  first 
made  the  subject  well  known  in  England.  It  is  called 
"Decimal  Coinage;  a  Plan  for  its  immediate  Extension 


INTERNATIONAL    MONEY.  173 

in  England  in  connection  with  the  International  Coinage 
of  France  and  other  Countries,"  and  was  privately  printed 
in  1866.  Mr.  Seyd's  "Treatise  on  Bullion  and  the 
Foreign  Exchanges "  may  also  be  consulted,  and  the 
Journal  des  Economistes  is  full  of  information  on  the 
subject. 

The  International  Association  for  obtaining  a  Uniform 
Decimal  System  of  Measures,  Weights,  and  Coins,  was 
founded  in  Paris  in  1855,  and  the  English  branch 
carried  on  active  operations.  In  1858  the  United  States 
made  ^proposals  towards  the  assimilation  of  currencies. 
In  1860  and  1863  important  international  congresses 
were  held  at  London  and  Berlin,  and,  at  the  latter  one 
especially,  important  resolutions  were  adopted  which  we 
shall  have  to  consider.  It  was,  however,  the  close  con- 
tiguity of  the  countries,  Belgium,  France,  Switzerland, 
and  Italy,  and  the  fact  that  French  gold,  and  even  silver 
coin,  could  not  be  prevented  from  passing  the  frontiers, 
which  forced  the  question  forwards,  and  led  in  December, 
1865,  to  an  actual  Convention  for  International  Currency. 

The  report  of  the  Congress  of  1863  concerning  v^ 
currency  is  a  highly  important  document.  It  points  out 
the  superior  convenience  of  a  gold  standard,  with  a 
subsidiary  coinage  of  silver  and  bronze;  advocates 
uniform  fineness  of  nine  parts  in  ten  for  all  standard 
coins ;  suggests  a  definition  of  weights  of  coins,  on  the 
metric  system;  and,  finally,  propounds  a  scheme  by  which 
the  existing  monetary  units  could  be  brought  into  simple 
relations  with  each  other. 

In  1870,  a  short  time  previous  to  the  declaration  of 


174  MONEY. 

war  with  Germany,  France  summoned  a  fresh  Imperial 
Commission,  presided  over  by  the  Minister  of  Commerce 
and  the  Minister  President  of  the  Council  of  State 
(M.  de  Parieu),  to  take  evidence  from  all  sides  on  the 
various  questions  connected  with  the  standard  and  its 
bearing  upon  international  coinage.  No  less  than  thirty- 
seven  witnesses  were  examined,  and  the  results  of  the 
inquiry,  printed  by  the  French  government  in  two  very 
large  volumes  in  1872,  show  that  the  majority  of  the 
witnesses  and  of  the  Commissioners  were  decidedly  in 
favour  of  a  single  gold  standard. 

Owing  to  a  purely  accidental  coincidence,  the  prin- 
cipal monetary  units  already  closely  approximate  to 
simple  multiples  of  the  franc.  The  following  table  shows 
the  present  relative  values  of  these  units  and  the  multiples 
to  which  it  is  proposed  to  make  them  exactly  conform. 

Present  value  Proposed 

in  francs.  value  in  francs 

Franc 1                             1 

Florin  (Austrian,  silver)  2*47                        2J 

Dollar  (American,  gold)  5 '18                         5 

Pound  sterling     .     .     .  25*22  25 

It  is  only  requisite  to  raise  the  florin  1'21  per  cent., 
and  to  lower  the  dollar  and  pound  sterling  respectively 
3'5  and  0*88  per  cent.,  to  establish  very  simple  ratios 
between  them.  Thus,  without  any  appreciable  change 
of  monetary  systems,  it  would  be  possible  to  reduce 
statements  from  one  mode  of  expression  into  another; 
moreover,  the  coins  might  themselves  have  international 
currency,  the  pound  sterling  serving  as  a  twenty-five 


INTERNATIONAL   MONEY.  175 

franc  piece  in  France,  and  as  a  five-dollar  piece  in 
America,  the  American  gold  dollar  reciprocally  circu- 
lating as  an  ecu  in  France,  and  a  four-shilling  piece 
in  England. 

The  congress  abstained  from  recommending  any  one 
unit  for  universal  adoption,  but  urged  that  every  nation, 
not  possessing  one  of  the  four  units  named,  should  select 
that  which  pleased  them  best.  Had  this  scheme  been 
accepted  by  all  nations  in  an  intelligent  and  liberal 
spirit,  we  should  ere  now  have  probably  seen  our  way 
clearly  to  the  selection  of  the  best  unit.  Since  1865, 
unfortunately,  both  the  German  empire  and  the  Scan- 
dinavian kingdoms  have  made  alterations  not  in  accord- 
ance with  these  principles.  A  great  assimilation  of 
moneys  has  taken  place,  but  it  is  in  the  direction  of 
groups  of  national,  rather  than  of  international  cur- 
rencies, although,  as  has  been  demonstrated  by  Mr. 
Hendriks  in  several  articles  in  the  Economist,  the  new 
coins  have  many  fresh  and  important  points  of  contact 
and  of  agreement  with  the  metrical  and  decimal  systems, 
so  that  some  real  progress  has  actually  been  accom- 
plished. 

Decimalization  of  English  Money. 

Since  Lord  Wrottesley  in  1824  proposed  in  parliament 
,to  adopt  a  decimal  subdivision  of  the  pound  sterling,  an 
immense  amount  of  discussion  has  taken  place  upon 
various  schemes  for  a  new  arrangement  of  our  money. 
The  advantages  of  several  plans  are  so  nearly  balanced, 
9 


176  MONEY. 

and  the  difficulty  of  carrying  any  one  into  effect  is  so 
great,  that  no  practical  result  has  yet  been  achieved 
by  half  a  century  of  debate.  The  two  principal  schemes, 
which  perhaps  need  alone  be  noticed  now,  are  the 
Pound  and  Mil  scheme,  and  the  Penny  and  Ten-franc 
scheme. 

The  former  of  these  schemes  reposes  upon  the  fact 
that  the  farthing  is  nearly  the  thousandth  part  of  the 
pound.  Since  960  farthings  make  a  pound,  it  would  only 
be  necessary  to  alter  the  farthing  4  per  cent,  to  obtain 
the  lowest  decimal  submultiple,  to  be  called  the  mil. 
The  penny  would  be  five  mils,  like  the  French  half- 
penny or  five  centimes ;  as  some  have  supposed,  a  new 
coin,  in  value  2'4d.,  would  have  to  be  introduced,  as 
the  hundredth  part  of  the  pound ;  but  this  is  unnecessary, 
and  the  florin  would  be  one  hundred  mils,  and  the  half- 
sovereign  five  hundred  mils.  The  great  advantage  of 
this  method  is,  that  it  retains  the  pound  as  the  principal 
unit,  together  with  several  other  familiar  coins.  Against 
it  has  been  urged,  (1)  the  supposed  fact  that  it  excludes 
the  most  familiar  of  all  coins,  the  shilling  and  sixpence, 
and  (2)  that  the  mil  is  somewhat  too  small  a  submultiple 
to  begin  with.  This  is,  however,  not  necessarily  the 
case.  The  shilling  might  remain,  as  coin  of  circulation, 
of  the  same  weight,  fineness,  and  value  as  at  present, 
but  would  be  translated,  as  coin  of  account,  into  fifty 
mils  instead  of  forty-eight  farthings,  and  the  sixpence 
into  twenty-five  mils  instead  of  twenty-four  farthings. 
This  subdivision  is  not  more  complex  than  the  one 
successfully,  and  in  the  almost  parallel  forms  of  fifty  and 


INTERNATIONAL   MONEY.  177 

twenty  pfennige,  centimes,  lire,  ore,  etc.,  pieces,  carried  out 
in  the  new  coinages  of  Germany,  Scandinavia,  or  of  the 
monetary  allies  of  France.  As  to  the  mil  being  too  small 
a  subnmltiple,  it  seems  to  be  overlooked  that  it  is  2J- 
times  as  large  as  the  initial  submultiple  of  the  French 
system,  and  2 -}%  times  as  large  as  that  of  the  new  German 
system. 

The  second  scheme  was  suggested  by  the  late  Pro- 
fessor Graham,  and  by  Mr.  Elvers  Wilson,  in  their  Eeport 
upon  the  Proceedings   of  the  International  Monetary 
Conference  of  1867.     It  is  founded  upon  the  fact  that  the 
ten-franc  piece  is  within  f  d.  of  eight  shillings,  and  only 
differs  4  per  cent,  from  one  hundred  pence.     Thus  it 
would  only  be  requisite  to  introduce  a  gold  piece  of  ten 
francs,  temporarily  serving  as  a  token  for  eight  shillings, 
to  obtain  a  link  with  the  French  system.     The  sub- 
sequent reduction  of  the  penny  by  4  per  cent.,  and  the 
replacement  of  the  shilling  by  a  franc  or  tenpenny-piece, 
would  give  us  a  truly  decimal  system.    A  great  advan- 
tage of  this  proposal  is,  that  it  retains,  almost  unaltered, 
so  familiar  a  coin  as  the  penny,  and  makes  it,  as  it  is 
for  the  most  part   at    present,  the  lowest  money  of 
account.    It  is,  moreover,  in  close  accordance  with  the 
French  monetary  system.     The  main  difficulty  is  that 
it  involves  the  abandonment  of  the  pound,  which  becomes 
two  and  a  half  of  the  new  unit;  and  that,  of  all  our 
present  coins,  only  the  florin,   penny,  and  halfpenny, 
would  fall  in  conveniently.     To  convert  sums  of  money 
from  pounds  sterling  into  the  new  currency,  it  would 
be  requisite  to  multiply  by  the  factor  2£,  which  would 


178  MONEY. 

be  regarded    by  most   people   as   a  very  troublesome 
process. 

When  the  decimalization  of  English  money  was  first 
proposed,  the  notion  of  international  money  had  never 
been  seriously  entertained,  and  hardly  indeed  conceived. 
So  much  progress  has  now  been  made,  that  it  is  impos- 
sible to  consider  the  one  reform  without  reference  to  the 
other.  The  difficulty  of  making  any  change  whatever  is 
so  great,  that  it  would  not  be  worth  while  to  achieve  a 
partial  reform. 

The  Future  American  Dollar. 

The  most  easy  and  important  step  which  can  now  be 
taken  towards  an  international  money,  consists  in  the 
assimilation  of  the  American  dollar  to  the  five-franc  piece. 
A  great  opportunity  arises  from  the  fact  that  the  currency 
of  the  United  States  is  now  a  variable  paper  currency. 
Considering  the  enormous  fluctuations  of  value  which 
have  been  experienced  in  the  last  ten  years,  it  would  be 
altogether  needless  scrupulosity  to  bring  it  back  to  the 
old  standard,  to  the  last  degree  of  exactness.  Every 
change  of  value  of  the  currency,  whether  it  be  a  fall  or 
a  rise,  is  so  far  injurious.  Now  the  American  dollar 
consists  of  25*8  grains  of  gold,  valued  in  English  money 
at  49*316  pence.  When  gold  is  at  111  the  paper 
dollar  will  be  at  a  discount  of  10  per  cent.,  and  will 
therefore  be  worth  44*384  pence,  whereas  the  French 
dollar,  or  five-franc  gold  piece,  weighs  24*89  grains, 
and  is  worth  47*58  pence.  It  would  be  obviously 


INTERNATIONAL    MONEY.  179 

desirable,  therefore,  to  make  the  new  metallic  dollar 
exactly  of  the  same  weight  as  the  French  one,  and  to 
commence  specie  payments  when  the  greenback  currency 
shall  have  risen  to  par  with  this  coin.  As  regards  all 
contracts  made  in  paper,  all  current  prices  and  charges, 
this  change  would  involve  no  breach  of  faith  whatever ; 
it  would  in  fact  imply  less  change  and  breach  of 
contracts  than  if  the  paper  currency  were  reduced 
sufficiently  to  come  to  par  with  the  old  dollar. 

The  reduction  of  weight  of  the  dollar  would  indeed 
lead  to  a  repudiation  of  all  gold  contracts,  including  all 
bonds  of  the  United  States,  railway  companies,  and 
other  bodies  payable  in  coin,  unless  provision  were  made 
to  alter  the  terms  of  such  contracts.  This  difficulty, 
however,  could  be  overcome  by  simply  enacting  that 
each  103J-  of  the  new  dollars  shall  be  received  and  paid 
as  equivalent  to  100  of  the  old  ones. 

There  is  little  doubt  that  the  adhesion  of  the 
American  government  to  the  proposals  of  the  Congress 
of  1863  would  give  the  holding  turn  to  the  metric  system 
of  weights,  measures,  and  moneys.  It  is  quite  likely 
that  it  might  render  the  dollar  the  future  universal 
unit.  The  fact  that  the  dollar  is  already  the  mone- 
tary unit  of  many  parts  of  the  world,  gives  it  large 
odds.  In  becoming  assimilated  to  the  French  ecu, 
American  gold  would  be  capable  of  circulation  in 
Europe,  or  wherever  the  French  napoleon  has  hitherto 
been  accepted.  It  may  seem  unpatriotic  in  an  English- 
man to  advocate  a  change  which  may  lead  to  the  defeat 
of  the  pound  sterling,  but  I  look  upon  any  one  scheme 


130  MONEY. 

of  unification  as  better  than  none.  Whatever  may  "bo 
the  ultimate  results,  I  desire  to  see  assimilation  between 
the  French  and  American  systems  adopted  as  soon  as 
possible.  For  reasons  subsequently  stated,  I  consider 
the  dollar  so  good  a  unit  that  it  would  be  mere  national 
prejudice  to  oppose  it,  were  there  a  fair  chance  of  its 
general  adoption.  Even  if  it  were  not  generally  adopted, 
it  would  be  a  great  step  in  advance  if  Great  Britain, 
America,  and  France  were  to  agree  to  coin  gold  money 
identical  in  weight  and  fineness,  which  might  circulate 
indifferently  as  sovereigns,  five-dollar  pieces,  and  twenty- 
five-iranc  pieces. 

German  Monetary  Reform. 

The  new  monetary  system  of  the  German  empire 
is  introducing  a  good  money  where  all  was  before  con- 
fusion. In  a  few  years  it  will  hardly  be  comprehensible 
to  Germans  that  they  had  BO  long  endured  a  state 
of  the  currency  in  which  two,  or  even  three  or  four, 
inconsistent  series  of  coins  were  mingled  without  any 
method.  In  many  respects  the  new  system  is  all  that 
could  be  desired.  In  place  of  the  antiquated  silver 
standard,  gold  is  selected  as  the  measure  of  value,  the 
sole  principal  money,  and  unlimited  legal  tender.  The 
unit  of  account  is  the  mark,  consisting  of  6*1465  grains 
of  gold  of  the  fineness  of  9  parts  in  10.  Its  value  is, 
therefore,  about  llfcZ.  The  principal  coin  will  be  the 
twenty-mark  piece,  weighing  122*92  grains,  or  7*964954 
grams,  and  containing  7*168459  grams  of  pure  gold. 
There  is  also  a  ten-mark  piece  of  exactly  half  the  weight. 


INTERNATIONAL   MONET.  181 

The  subordinate  coins  of  silver  and  nickel-copper 
are  issued  on  the  footing  of  the  composite  tender,  or 
English  system,  being  tokens.  The  seignorage  to  be 
levied  on  the  German  silver  coins,  will  be  11*111  per 
cent.,  exceeding  the  amounts  subtracted  from  the  English 
and  French  silver  money,  which  are  about  9  and  7 '784 
per  cent,  respectively. 

It  cannot  he  too  much  regretted  by  all  friends  of 
progress  that,  in  deciding  upon  the  weight  of  the  new 
mark  piece,  the  German  government  should  have 
studiously  avoided  assimilation  to  the  French  system. 
The  sovereign  contains  7*3224  grams  of  pure  gold,j;he 
twenty-five-franc  piece  when  coined  will  contain  7*2581, 
and  the  twenty-mark  piece  has  been  made  to  contain 
7*1685.  The  only  ground  on  which  this  precise  weight 
could  have  been  justified,  is  that  three  marks  are 
approximately  equal  to  one  thaler.  But  so  various  was 
the  coinage  of  the  German  states,  that  the  field  was 
open  to  the  adoption  of  any  system ;  and  it  is  impossible 
to  suppose  that  in  so  great  a  reform  a  difference  of 
1J  per  cent,  would  have  been  an  insuperable  obstacle 
to  the  adoption  of  international  coinage. 

Systems  of  Fractional  Money. 

A  unit  of  value  having  been  chosen,  there  are  three 
competing  methods  according  to  which  it  might  be 
subdivided,  the  binary,  duodecimal,  and  decimal.  The 
first  system  is  carried  out  most  perfectly  in  our  avoir- 
dupois weights,  in  which  sixteen  ounces  make  a  pound ; 


182  MONEY. 

but  it  is  also  freely  employed  in  our  monetary  system, 
the  sovereign  being  divided  into  half-sovereigns,  crowns, 
and  half-crowns,  the  shilling  into  sixpences  and  three- 
penny pieces ;  and  the  penny  into  halfpence  and  far- 
things. At  the  same  time,  the  duodecimal  method  is 
represented  in  our  money  by  the  division  of  the  shilling 
into  twelve  pence,  of  which  the  third  part  is  still  in 
circulation  as  the  groat,  or  fourpenny  piece,  now  being 
withdrawn. 

Each  system  of  subdivision  has. its  own  advantages, 
and  there  must  always  exist  a  kind  of  natural  competi- 
tion between  them.  They  have  thus  competed  from  the 
earliest  times.  In  ancient  Italy  the  duodecimal  system 
predominated  to  the  south  of  the  Apennines,  while  the 
decimal  divison  was  in  use  to  the  northward.  In  Sicily 
the  two  methods  were  confused  together.  China  has 
had  a  purely  decimal  system  from  an  unknown  epoch  in 
antiquity.  In  England  duodecimal  and  binary  divi- 
sions have  existed  from  very  early  times.  It  will  be 
readily  allowed  that  the  binary  system  is  most  simple 
and  natural,  involving  as  it  does  the  least  possible 
factor  above  unity.  The  duodecimal  system  also  has 
marked  advantages,  because  it  allows  of  division  into 
several  aliquot  parts,  involving  the  factor  2  twice  over, 
and  the  next  higher  factor  3  once.  Thus  the  shilling 
is  divisible  exactly  into  two  sixpences,  three  fourpences, 
four  threepences,  and  six  twopences. 

The  decimal  system  is  far  less  simple,  and  in  some 
ways  less  convenient.  Ten  admits  of  only  two  factors 
superior  to  unity,  namely,  2  and  5,  and  5  is  a  more 


INTERNATIONAL   MONEY.  183 

complex  prime  factor  than  appears  in  either  of  the 
previous  methods.  But  the  system  has  the  supreme 
advantage  of  exactly  falling  in  with  our  decimal  system 
of  numeration  and  calculation.  Although  probahly  not 
the  best  method  which  might  have  been  selected,  had 
selection  been  open  to  us,  decimal  numeration  is  firmly 
fixed  among  the  institutions  of  the  human  race,  as  an 
hereditary  habit,  derived  from  the  early  practice  of 
counting  on  the  fingers.  We  have  no  choice  but  to 
accept  the  inevitable,  and  as  all  our  arithmetical  pro- 
cesses are  conducted  on  the  decimal  method,  there  is  an 
overwhelming  advantage,  as  education  and  the  use  of 
writing  advance,  in  making  all  our  weights,  measures, 
and  coins  conformable  to  the  same  system. 

A  perfectly  and  purely  decimal  system,  indeed,  would 
admit  only  the  decimal  multiples  and  submultiples, 
thus :— 1000,  100,  10,  1,  O'l,  O'Ol,  O'OOl.  But  it  is  so 
troublesome  to  have  to  count  out  as  many  as  ten  coins, 
before  coming  to  the  next  higher  unit,  that  the  rigour 
of  the  decimal  divisions  has  always  been  relaxed.  In 
the  French  system,  the  half  and  the  double  of  each 
multiple  are  allowed  to  be  represented  by  intermediate 
coins,  the  series  being  1,  2,  5,  10,  20,  50,  100,  200, 
500,  etc.  The  American  coinage  is  less  simple  and 
symmetrical,  since  it  admits  the  half  and  quarter  eagle, 
half  and  quarter  dollar,  the  ten  and  five-cent  pieces,  and 
also  a  three-cent  piece.  I  am  inclined  to  prefer  the 
French  method,  and  to  think  that  the  American  mint 
has  issued  too  many  denominations  of  coins. 


184"  MONKY. 

Final  Selection  of  the  Unit  of  International  Money. 

I  will  conclude  this  chapter  by  some  remarks  on  the 
reasons  "which  should  guide  us  in  selecting  the  monetary 
unit  to  be  finally  established  as  the  basis  of  a  future 
universal  money. 

I  attribute  very  little  weight  to  arguments  concerning 
the  absolute  amount  of  the  rival  units.  It  is  said  that 
as  the  wealth  of  nations  increases,  and  the  value  of 
gold  at  the  same  time  sinks,  we  need  a  larger  unit. 
The  pound  is  recommended  on  this  ground  as  clearly 
superior  to  the  franc.  If  we  count  in  francs  our  figures 
will  be  twenty-five  times  as  large  as  in  pounds  sterling. 
It  seems  to  be  forgotten  that  the  same  unit  can  never 
suit  the  extremely  different  sums  which  we  have  to 
express,  so  that  we  must  use  multiples  or  submultiples 
of  the  actual  unit.  Just  as  we  use  inches,  feet,  yards, 
furlongs,  miles,  or  diameters  of  the  earth's  orbit,  accord- 
ing to  the  magnitudes  to  be  measured,  so  we  vary  the 
unit  with  money.  If  we  are  discussing  a  workman's 
weekly  wages,  we  count  in  shillings;  if  we  speak  of  a 
clerk's  yearly  salary,  we  speak  of  pounds ;  if  the  fortune 
of  a  merchant  or  banker  is  in  question,  we  take  notice 
only  of  thousands  of  pounds ;  in  matters  relating  to  the 
revenue  of  the  kingdom  or  the  national  debt,  we  give 
our  exclusive  attention  to  millions  of  pounds.  The 
Portuguese  unit  of  account,  called  the  m,  is  worth  only 
about  the  nineteenth  part  of  an  English  penny,  and  is 
probably  the  smallest  unit  in  the  world.  Practically, 
however,  the  milreis,  or  thousand  reis,  worth 


INTEBNATIONAL   MONEY.  185 

becomes  the  unit.  In  the  same  way  Indian  merchants 
speak  of  lacs  and  crores  of  rupees.  The  French  estimate 
their  national  debt  in  milliards  of  francs.  No  doubt  it 
is  puzzling  to  Englishmen  to  interpret  exactly  the 
meaning  of  a  milliard  of  francs,  but,  to  those  accustomed 
to  count  in  francs  it  is  no  more  difficult  than  a  million 
of  pounds.  Exactly  the  same  considerations  apply  to 
units  of  weight ;  thus,  though  the  French  use  so  small 
an  ultimate  unit  as  one  gram,  or  15*43  grains,  yet 
according  to  the  magnitudes  of  the  objects  to  be  weighed, 
they  use  smaller  or  larger  units,  centigrams  or  milli- 
grams on  the  one  side,  or  decagrams  and  kilograms  on 
the  other.  The  absolute  amount  then  of  the  ultimate 
unit  seems  to  me  to  be  entirely  a  matter  of  indifference 
in  this  point  of  view. 

As  regards  the  subdivision  of  the  unit  there  are  con- 
siderations of  more  importance.  The  subdivision  ought 
of  course  to  be  decimal,  and  it  ought  to  be  so  contrived 
that  the  lowest  submultiple  shall  correspond  to  the 
smallest  sum  which  is  thought  worthy  of  being  recorded 
in  mercantile  transactions.  Now  the  franc  is  divided 
into  100  centimes,  so  that  the  centime  has  a  value  of  less 
than  the  tenth  of  a  penny.  Though  bronze  pieces  of 
one  and  two  centimes  were  coined  to  the  amount  of 
about  5  per  cent,  of  the  whole  bronze  currency,  it  is 
found  that  they  hardly  circulate.  Even  if  they  were 
used  in  the  smallest  retail  transactions  at  baker's  shops, 
they  would  not  be  entered  in  account  books.  Thus  the 
lowest  entry  which  a  French  accountant  makes  is  five 
centimes,  and  the  next  lowest  ten  centimes,  corresponding 


186  MONEY.       , 

to  our  penny.  A  needless  complexity  is  thus  introduced 
into  small  accounts.  It  is  indeed  so  inconvenient  to 
have  to  call  the  smallest  coin  in  general  use  cinq 
centimes  that  it  is  still  common  to  speak  of  it  as  a  sou, 
in  spite  of  the  ninety  years  during  which  the  decimal 
system  has  existed  in  France.  The  Portuguese  rei  is 
so  small  a  unit  that  it  is  not  represented  by  any  coin  at 
all.  It  nevertheless  has  a  place  in  Portuguese  mercantile 
accounts,  and  thus  needlessly  adds  a  figure  to  all 
pecuniary  statements. 

In  England  the  smallest  coin  in  actual  use  is  the 
farthing,  but  in  accounts  little  notice  is  taken  of  farthings 
or  halfpennies,  so  that  the  penny  is  the  lowest  money 
of  account.  The  post-office,  in  the  regulations  of  the 
savings  bank  business,  refuses  to  recognize  any  coin  less 
than  the  penny.  But  the  penny  is  inconveniently 
related  to  the  pound,  the  hundredth  part  of  which  is 
2'4d.,  and  the  thousandth  part  about  a  farthing.  Thus 
the  decimal  system  applied  to  our  pound  would  oblige 
us  to  record  as  the  lowest  money  of  account  an  incon- 
veniently small  coin,  namely,  the  mil.  In  this  respect, 
indeed,  the  pound  and  mil  scheme  is  superior  to  the 
franc  and  centime  system.  Thus  12s.  6d.  may  be  ex- 
pressed as  625  mils ;  but  in  French  money  (at  twenty- 
five  francs  to  the  pound)  it  would  become  15*625. 
Taking  the  ten-franc  piece  as  the  principal  unit,  it 
would  become  1*56  units,  or  156  metrical  pennies.  In 
many  cases  it  would  require  less  figures  to  express  a 
sum  in  pennies  than  in  mils  or  centimes. 

The  American   system    is    unexceptionable  in   this 


INTERNATIONAL    MONEY.  187 

respect.  The  dollar  is  divided  into  one  hundred  cents, 
each  of  which  has  the  value  of  about  one  halfpenny. 
Although  half-cents  have  been  coined,  and  may  be  used 
in  some  trifling  purchases,  they  need  never  be  entered 
in  ordinary  accounts.  The  cent  thus  seems  to  me  to 
correspond  to  the  smallest  sum  which  need  be  treated 
in  accounts,  so  that  money  statements  are  reduced 
to  the  greatest  possible  simplicity.  The  question  may 
well  be  asked  whether  the  lowest  coin  actually  recorded 
is  not  truly  the  unit,  of  which  all  other  coins  are 
multiples.  Perhaps  the  best  answer  would  be  to  say 
that  the  unit  is  indifferently  the  cent,  or  the  dollar,  or 
the  eagle.  In  English  money  it  matters  not  whether 
we  regard  the  pound,  or  its  twentieth  part,  or  its  two 
hundred  and  fortieth  part,  as  the  unit.  The  absolute 
amount  of  the  unit,  I  repeat,  is  totally  a  matter  of 
indifference,  and  the  only  point  we  have  to  consider 
is  whether  it,  or  any  decimal  part  of  it,  corresponds 
to  the  smallest  sum  of  which  we  need  take  account.  In 
this  respect  the  dollar  is  the  best  existing  unit;  but 
it  might  admit  of  discussion  whether  the  double  dollar, 
or  ten-franc  piece  of  gold,  equal  to  eight  shillings,  or  one 
hundred  pence,  would  not  be  better.  If  the  wealth  of 
nations  continues  to  grow,  and  the  value  of  gold  to  fall, 
even  the  cent  will  be  too  small  a  coin  to  appear  con- 
veniently in  accounts,  and  the  penny  will  be  a  better 
lowest  unit.  In  this  case  the  hundred  pennies,  or  the 
ten-franc  piece,  would  become  the  best  unit.  The  choice 
thus  seems  to  me  to  lie  between  the  five-franc  and  the 
ten-franc  piece  in  gold  as  the  ultimate  unit  of  interna- 


188  MONEY. 

tional  money.  In  favour  of  the  ten-franc  piece  it  may 
be  added,  that  it  would  make  a  convenient  gold  coin  of 
the  smallest  size  which  it  would  be  well  to  issue.  The 
gold  dollar  and  five-franc  piece  are  too  small,  and  suffer 
great  abrasion. 


CHAPTEK  XV. 

THE  MECHANISM  OF  EXCHANGE. 

HAVING  now  sufficiently  discussed  the  subject  of  metallic 
money,  we  pass  on  to  consider  the  devices  which  natur- 
ally develop  themselves  in  a  highly  organized  commer- 
cial nation,  for  the  purpose  of  economizing  the  precious 
metals,  or  even  avoiding  the  use  of  coins  altogether. 
No  sooner  have  a  people  fully  experienced  the  usefulness 
of  a  good  system  of  money,  than  they  begin  to  discover 
that  they  can  dispense  with  it  as  a  medium  of  exchange, 
and  return  to  a  method  of  traffic  closely  resembling  barter. 
With  barter  they  begin  and  with  barter  they  end ;  but 
the  second  form  of  barter,  as  we  shall  see,  is  very  different 
from  the  first.  Purchases  and  sales  continue  to  be 
made  in  terms  of  gold  and  silver  coin,  but  equivalent 
quantities  of  goods  thus  estimated  are  made  to  pay  for 
each  other.  If  ownership  in  gold  or  silver  intervenes 
at  all,  it  is  in  the  shape  of  warrants  or  representative 
documents  with  which  gold  can  be  procured,  if  desired, 
but  which  are  seldom  used  to  procure  it. 

At  the  outset  we  found  that  money  performed  at  least 
two,  and  probably  four  distinct  functions  (Chapter  III.) ; 


190  HONES. 

and,  in  a  simple  state  of  industry,  it  is  convenient  that  the 
same  metallic  substance  should  fulfil  all  these  functions 
concurrently.  But  it  does  not  follow  that  this  union  ofc 
functions  is  the  best  possible  arrangement  under  all  con- 
ditions. We  shall  find  that  gold  or  silver  always  continues 
to  be  the  common  denominator  of  value,  but  that  these 
metals  cease  to  a  great  extent  to  be  the  actual  medium 
of  exchange  which  is  passed  about  between  buyer  and 
seller.  In  a  later  part  of  the  book  (Chapter  XXV.)  I  shall 
further  show  that  money  may  with  great  advantage  be 
replaced  in  its  function  as  a  standard  of  value  for  long 
periods  of  time  by  a  Tabular  Standard. 

Progressive  Development  of  the  Methods  of  Exchange. 

Beginning  with  the  primitive  method  of  barter,  a 
series  of  steps  have  been  made  towards  a  perfect  and 
world-wide  system  of  interchange  of  commodities,  with 
the  least  possible  use  of  the  precious  metals.  We  may 
classify  the  devices  employed  for  avoiding  the  use  of 
metallic  money  under  five  different  heads,  as  follows  : — 

1.  Replacement  of  standard  money  by  representative 
money. 

2.  Intervention  of  book  credit. 

3.  The  cheque  and  clearing  system. 

4.  Use  of  foreign  bills  of  exchange. 
6.  International  clearing  system. 


THE    MECHANISM    OF    EXCHANGE.  191 

Representative  Money. 

Metallic  money,  as  we  have  seen,  immensely  facili- 
tates and,  so  to  speak,  lubricates  the  operation  of  ex- 
change. But  nations  employing  gold  and  silver  money 
have  usually  discovered,  in  the  course  of  time,  that  tokens 
of  small  metallic  value,  or  even  pieces  of  leather  and 
paper  of  nominal  value,  might  be  passed  from  hand  to 
hand  as  signs  of  the  ownership  of  coins.  That  which 
replaces  gold,  or  silver,  or  copper  money,  is  at  first  of 
a  purely  representative  character.  But,  when  a  commu- 
nity has  become  thoroughly  habituated  to  the  circulation 
of  a  currency  of  this  character,  it  is  often  found  possible 
to  remove  the  basis  of  valuable  metal,  which  it  is  sup- 
posed to  represent,  and  yet  to  maintain  the  valueless 
bits  of  leather  or  paper  in  circulation  as  before.  Thus 
arises  the  abnormal  phenomenon  known  as  an  incon- 
vertible paper  money.  Such  a  currency  is,  however,  never 
accepted  beyond  the  frontiers  of  the  state  recognizing  it. 

Merchants  conducting  large  international  transactions 
soon  found  out  that  great  loss  of  interest  and  risk  of  loss 
of  the  whole  money  would  arise,  if  they  were  to  trade 
with  actual  specie.  Hence  they  introduced  the  use,  many 
centuries  since,  of  bills  of  exchange,  which  are  signs  or 
certificates  of  debt,  passed  from  hand  to  hand  almost  like 
representative  money,  and  often  accomplishing  many 
acts  of  exchange  by  a  single  transfer  of  specie. 


192  MONEY. 

Cheque  and  Clearing  System. 

There  is  yet  a  more  potent  way  of  avoiding  the 
actual  use  of  a  medium  of  exchange,  without  encounter- 
ing any  of  the  inconveniences  of  barter.  Those  who 
frequently  traded  with  each  other,  both  buying  and  selling, 
found  that  it  was  absurd  to  pay  a  sum  of  money  for 
what  was  bought,  and  then  receive  it  back  for  what  was 
sold.  It  was  sufficient  to  estimate  in  terms  of  money 
the  values  of  the  articles  exchanged,  and  then  pay  the 
difference,  if  any,  in  actual  cash.  The  practice  having 
grown  up  of  depositing  the  metallic  money  not  im- 
mediately wanted  with  goldsmiths  or  bankers,  for  safe 
custody,  it  was  gradually  discovered  that  an  order  to 
pay  money  would  serve  instead  of  the  money ;  and  that, 
if  two  persons  trade  with  the  same  banker,  they  need  not 
in  their  mutual  transactions  handle  the  money  at  all. 
A  transfer  in  the  books  of  their  common  bankers  will 
effect  the  payment  of  any  balance  of  debt.  Bankers 
can  in  like  manner  arrange  their  mutual  accounts,  and 
in  this  way  there  has  been  gradually  developed  in  this 
country  and  in  America  a  vast  system,  which  I  propose 
to  denominate  the  Cheque  and  Clearing  System,  whereby 
all  the  larger  internal  transactions  of  the  people  are 
arranged  by  a  mere  settlement  of  accounts. 

In  this  system  London  naturally  becomes  the  mone- 
tary centre  of  the  United  Kingdom ;  but  there  is  a  further 
tendency  to  make  London  the  banking  centre  of  the 
world  as  regards  all  large  and  international  transactions. 
It  is  found  to  be  advantageous  to  deposit  money  in 


THE    MECHANISM    OF    EXCHANGE.  193 

London,  or  to  obtain  credit  and  make  bills  payable  there, 
rather  than  elsewhere.  By  such  a  concentration  of 
banking  operations,  London  tends  to  become  the  seat  of 
a  world-wide  Clearing  House.  Such  are  the  principal 
steps  in  the  development  of  the  mechanism  of  ex- 
change, and  we  proceed  to  consider  them  in  detail. 


194*  MOSEY. 


CHAPTER  XVI. 

.REPRESENTATIVE  MONET. 

ALTHOUGH  we  now  distinguish  money  according  as  it  is 
metallic  or  paper  money,  because  paper  has  in  recent 
times  been  universally  adopted  as  the  material  for 
representative  money,  yet  it  is  well  to  remember  that 
various  other  substances  have  been  used  for  the  purpose. 
We  may  pass,  in  fact,  by  gradual  steps  from  the  perfect 
standard  coins,  whose  nominal  value  is  coincident  with 
their  metallic  value,  to  worthless  bits  of  paper,  which 
are  yet  allowed  to  stand  for  thousands,  or  even  millions 
of  pounds  sterling. 

.  Token  money,  which  we  considered  in  Chapter  VIII. 
(p.  67),  is  in  some  degree  representative  money,  because 
•  it  derives  its  value,  not  so  much  from  the  metal  it  con- 
tains as  from  the  standard  coins  for  which  it  can  be 
exchanged.  There  is  no  need  that  a  promise  should  be 
always  expressed  by  ink  and  paper.  It  may  be  still  more 
durably  recorded  by  a  die  upon  a  piece  of  metal.  Ac- 
cordingly, while  the  monarchs  of  England  down  to  the 
end  of  Elizabeth's  reign  refused  to  debase  their  currency, 
as  the  notion  seems  to  have  been,  by  issuing  such  a 


BEPRESENTATIVE    MONEY.  195 

poor  metal  as  copper,  the  tradesmen  supplied  the  want 
of  pence  by  issuing  tokens.  These  pieces  were  in  the 
earlier  centuries  composed  of  lead,  or  latten,  a  kind 
of  brass,  or  sometimes,  it  is  believed,  of  leather.  During 
the  last  century,  again,  they  were  issued  in  large  quan- 
tities, chiefly  in  copper,  and  often  bore  an  express 
statement  that  they  served  as  promissory  notes.  Thus 
a  well-executed  piece,  issued  at  Southampton  in  1791, 
bears  the  inscription,  "Halfpenny  Promissory,  payable 
at  the  Office  of  W.  Taylor,  K.  V.  Moody  &  Co."  A 
token  struck  by  the  Flint  lead  works  in  1813,  states  the 
promise  in  different  terms,  thus — "  One  Penny  Token,- 
One  Pound  Note  for  240  Tokens."  The  variety  of  such 
promissory  coins  issued  at  one  time  or  other  is  very 
great,  and  their  study  forms  an  important  branch  of 
numismatic  science,  as  will  be  learnt  by  looking  into  such 
a  work  as  Akerman's  "London  Tradesmen's  Tokens." 
In  quite  recent  years  small  money  was  found  to  be 
scarce  in  New  South  Wales,  and  some  tradesmen  issued 
copper  or  bronze  tokens  which  circulated  until  the  year 
1870,  when  their  further  use  was  prohibited. 

The  ancients  were  well  acquainted  with  the  difference 
between  a  standard  and  a  token  currency.  The  iron 
money  of  the  Lacedaemonians  was  probably  standard 
legal  tender,  for  it  is  described  as  being  heavy  and 
bulky,  and  yet  of  small  value.  The  iron  money  of  the 
Byzantines,  on  the  contrary,  was  token  representative 
money.  We  shall  find  in  the  following  section  that 
pieces  of  money  of  the  same  nature  as  bank-notes  were 
also  employed  by  several  ancient  nations. 


196  MONEY. 

Early  History  of  Representative  Money. 

Ancient  nations  were  unacquainted  with  the  use  of 
paper  money,  simply  because  they  had  no  paper.  But 
it  would  be  a  mistake  to  suppose  that  they  did  not 
employ  representative  money  exactly  on  the  same  prin- 
ciples as  we  use  bank-notes.  Some  few  particulars  on 
the  subject  have  long  been  known,  but  a  recent  article 
by  M.  Bernardakis  in  the  Journal  des  Economistes  (vol. 
xxxiii.  pp.  353-370)  has  added  much  to  our  knowledge, 
and  made  it  quite  clear  that  the  ancients  were  more 
.  acute  in  matters  of  currency  than  we  have  given  them 
credit  for. 

One  of  the  very  earliest  mediums  of  exchange,  as  we 
have  seen  (p.  20),  consisted  of  the  skins  of  animals. 
The  earliest  form  of  representative  money  consisted  of 
small  pieces  of  leather,  usually  marked  with  an  official 
seal.  It  is  a  very  reasonable  suggestion  made  by  Storch, 
Bernardakis,  and  other  writers,  that  when  skins  and  furs 
began  to  be  found  an  inconveniently  bulky  kind  of 
money,  small  pieces  were  clipped  off,  and  handed  over 
as  tokens  of  possession.  By  fitting  into  the  place  from 
which  they  were  cut  they  would  prove  ownership,  some- 
thing in  the  same  way  that  notched  sticks,  or  tallies, 
were  for  many  centuries  used  to  record  loans  of  money 
to  the  English  Exchequer.  We  know  by  experience  in 
the  case  of  paper  money,  that  if  a  people  had  become 
thoroughly  accustomed  to  the  circulation  of  these  small 
leather  tallies,  they  would  in  time  forget  their  repre- 
sentative character,  and  continue  to  circulate  them, 


REPRESENTATIVE    MONEY.  197 

when  the  government,  or  other  holders  of  the  skins 
themselves,  had  made  away  with  the  actual  property. 
Such  is  no  douht  the  history  of  the  leather  money 
which  long  had  currency  in  Eussia. 

It  is  impossible  to  ascertain  what  was  the  character 
of  the  leather  money  which,  according  to  an  obscure 
tradition,  was  in  use  at  Eome  before  the  time  of  Nunia. 
There  is  no  doubt  that  the  Carthaginians  had  a  repre- 
sentative leather  currency,  for  ^Eschines  the  Socratic 
tells  us  that  they  used  small  pieces  of  leather  wrapped 
round  cores  of  unknown  material,  and  then  sealed  up. 
Neighbouring  nations  refused  to  receive  these  curious 
pieces  of  currency,  whence  we  may  safely  infer  that 
their  value  was  nominal. 

It  is  however  in  China  that  the  use  of  paper  money 
was  most  fully  developed  in  early  times.  More  than  a 
century  before  the  Christian  era,  an  emperor  of  China 
raised  funds  to  prosecute  his  wars  in  a  way  which  shows 
that  the  use  of  leather  tokens  was  familiar  to  the  people. 
The  tokens  having  been  made  of  the  skins  of  white  deer, 
he  collected  together  into  a  park  all  deer  of  this  colour 
which  he  could  find,  and  prohibited  his  subjects  from 
possessing  any  animals  of  the  same  kind.  Having  thus 
obtained  a  monopoly  of  the  material,  reminding  one 
of  the  monopoly  of  the  Bank  of  England  in  water- 
marked paper,  he  issued  pieces  of  the  white  leather  as 
money  at  a  high  rate. 

In  the  middle  of  the  thirteenth  century,  Marco  Polo 
found  a  paper  money  in  circulation  in  China,  composed 
of  the  inner  bark  of  a  tree  beaten  up  and  made  into 


198  MONEY. 

paper,  square  pieces  of  which  were  signed  and  sealed  with 
great  formality.  These  notes  were  of  various  values, 
and  were  legal  tender,  death  being  the  penalty  imposed 
upon  those  who  refused  to  receive  them.  Counter- 
feiters likewise  incurred  the  same  penalty.  Another 
traveller,  who  visited  China  in  the  fourteenth  century, 
gives  a  very  similar  account  of  the  paper  money  then 
circulating,  and  adds  that,  when  worn  or  torn,  it  could 
be  exchanged  for  new  notes  without  charge.  It  is  need- 
less to  follow  out  the  long  and  doubtful  history  of  the 
subject  in  later  times,  many  particulars  of  which  will 
be  found  in  the  article  of  M.  Bernardakis,  or  that  of 
M.  Courcelle-Seneuil  on  Papier  Monnaie  in  the  "Dic- 
tionnaire  de  1'Economie  Politique."  It  may  suffice  to 
say  that  the  history  resembles  that  of  most  inconvertible 
currencies.  The  quantity  of  paper  afloat  increased  so 
much  under  the  Mongol  dynasty  as  to  cause  great  evils, 
and  the  Ming  dynasty,  continuing  the  issues,  went  so  far 
as  to  prohibit  the  use  of  gold  or  silver  money.  The 
value  of  the  paper  fell  so  low,  it  is  said,  that  one 
metallic  cash  was  worth  a  thousand  paper  cash,  remind- 
ing us  of  the  present  state  of  the  paper  currency  in 
San  Domingo.  The  result  was  a  collapse  and  reaction 
in  the  fifteenth  century. 

Among  other  Asiatic  nations,  the  Tartars  and  the 
Persians  also  understood  the  use  of  paper  money,  and 
Sir  John  Maundeville,  who  travelled  in  Tartary  in  the 
fourteenth  century,  gives  the  following  account  of  the 
advantages  which  the  Great  Chan  enjoyed  in  con- 
sequence. '*  This  Emperour  may  dispenden  als  moche 


REPRESENTATIVE    MONEY.  199 

as  lie  wile,  withouten  estymacioun.  For  he  despendethe 
not,  ne  makethe  no  money,  but  of  Lether  emprented,  or 
of  Papyre.  And  of  that  money,  is  som  of  gretter  prys, 
and  som  of  lasse  prys,  aftre  the  dyversitee  of  his 
Statutes.  And  whan  that  Money  hathe  ronne  so  longe 
that  it  begynnethe  to  waste,  than  men  beren  it  to  the 
Emperoure's  Tresorye;  and  than  thei  taken  newe 
money  for  the  olde.  And  that  Money  gothe  thorghe 
out  alle  the  eontree,  and  thorghe  out  alle  his  Provynces. 
For  there  and  beyonde  hem,  thei  make  no  Money 
nouther  of  Gold  nor  of  Sylver.  And  therefore  he  may 
despende  ynow,  and  outrageously."  Not  a  few  great 
emperors  and  kings  and  even  republics  ha/e  imitated 
the  Great  Chan,  and  have  spent  their  paper  money, 
"  ynow  and  outrageously." 

Reasons  for  the  Use  of  Representative  Money. 

It  is  well  to  analyse  and  state  exactly  the  reasons 
which  may  be  given  for  the  introduction  of  pieces  of 
representative  money.  Several  motives  may  be  detected, 
and  they  have  been  of  different  weight  in  different  cases. 
The  origin  of  the  European  system  of  bank-notes  is  to 
be  found  in  the  deposit  banks  established  in  Italy  from 
four  to  seven  centuries  ago.  In  those  days  the  circu- 
lating medium  consisted  of  a  mixture  of  coins  of  many 
denominations,  variously  clipped  or  depreciated.  In 
receiving  money,  the  merchant  had  to  weigh  and 
estimate  the  fineness  of  each  coin,  and  much  trouble, 

loss  of  time,  and  risk  of  fraud  thus  arose.     It  became, 
10 


200  MONEY. 

therefore,  the  custom  in  the  mercantile  republics  of  Italy 
to  deposit  such  money  in  a  bank,  where  its  value  was 
accurately  estimated,  once  for  all,  and  placed  to  the 
credit  of  the  depositor. 

The  banks  of  Amsterdam  and  Hamburg  were  sub- 
sequently established  on  a  similar  system,  and  a  full 
account  of  them  will  be  found  in  Adam  Smith's  "  Wealth 
of  Nations,"  Book  IV.,  Chapter  III.,  and  in  Hewitt's 
"  Treatise  upon  Money  "  (p.  121).  The  money  placed  to 
the  credit  of  individuals  in  these  banks  was  called  bank- 
money  ,  and  commanded  an  agio  or  premium  correspond- 
ing to  the  average  depreciation  of  the  coins.  Payments 
were  made  by  the  merchants  attending  at  the  bank 
at  a  particular  hour,  and  ordering  transfers  to  be  made 
in  the  bank  books.  The  money  paid  was  thus  always 
of  full  value,  and  all  trouble  in  counting  and  valuing 
it  was  avoided.  The  regulations  of  these  banks  were, 
however,  in  many  respects  complicated,  and  it  is  difficult 
to  understand  their  purpose. 

Inconvenience  of  Metallic  Money. 

Closely  involved  with  the  previous  motive  for  the  use 
of  representative  money  is  that  of  avoiding  the  trouble 
and  risk  of  handling  large  amounts  of  the  precious 
metals.  In  order  to  keep  large  sums  of  metallic  money 
in  safety  a  person  must  have  strongholds  and  watch- 
men. The  origin  of  banking  in  England  has  never  been 
sufficiently  investigated,  but,  so  far  as  we  know,  it  arose 
for  the  purpose  of  safe  custody.  While  public  and  well- 


BEPKESENTATIVE   MONEY.  201 

regulated  deposit  banks  had  existed  for  centuries  in 
Italy,  the  only  trace  of  such  an  institution  in  England 
was  found  in  the  mint  in  the  Tower  of  London,  whither 
merchants  were  accustomed  to  send  their  specie  for  safe 
keeping.  Unfortunately,  in  1640  King  Charles  I.  ap- 
propriated as  a  loan  ^£200,000  thus  deposited,  and  the 
merchants,  no  longer  trusting  the  government,  and  find- 
ing it  dangerous  to  keep  large  sums  of  money  in  their 
own  houses  during  the  troubled  times  which  followed, 
resorted  to  the  practice  of  depositing  their  money  with 
goldsmiths,  who  probably  had  vaults  and  guards  suitable 
for  the  purpose.  . 

As  acknowledgments  of  the  possession  of  such  sums 
of  money,  the  goldsmith  gave  receipts,  and  at  first  these 
documents  were  special  promises,  like  dock  warrants. 
The  practice  arose  of  transferring  possession  by  delivery 
of  these  receipts,  or  "goldsmith's  notes,"  as  they  were 
called.  Such  notes  are  frequently  referred  to  in  Acts 
of  Parh'ament,  and  even  as  late  as  1746  most  of  the 
London  bankers  continued  to  be  members  of  the  Gold- 
smith's Company.  It  is  plain  from  the  manner  in  which 
these  notes  were  mentioned  in  some  statutes  that  they 
had  become  general  and  not  special  promises — mere 
engagements  to  deliver  a  sum  of  money  on  demand, 
without  conditions  as  to  keeping  a  reserve  for  the 
purpose. 


202  MONEY. 

The  Weight  of  Currency. 

Even  the  weight  of  metallic  money  would  be  a  suffi- 
cient reason  for  the  use  of  representative  documents  in 
large  transactions.  In  proportion  as  the  legal  tender  is 
more  bulky  and  inconvenient  to  carry  about,  is  this 
motive  more  powerful.  Thus,  when  the  state  of  Virginia 
employed  tobacco  as  the  medium  of  exchange  in  the 
eighteenth  century,  the  tobacco  was  placed  in  stores, 
and  receipts  on  paper  were  handed  about.  Paper  money 
was  issued  in  Russia  under  Catherine  II.  in  1768,  on 
the  ground  that  the  copper  money,  then  forming  the  legal 
tender,  was  inconvenient.  So  much  were  these  assignats, 
or  notes,  preferred,  that  they  at  first  circulated  at  a 
premium  of  J  per  cent. 

In  the  present  state  of  commerce,  even  gold  money 

would  be  far  too  heavy  to  form  a  convenient  medium  for 

making  large  payments.     M.   Chevalier   states  that  it 

would  require  forty  men  to  carry  the  gold  equal  in  value 

to  the  Eegent  Diamond.     The  average  daily  transactions 

in  the  London  Bankers'   Clearing    House   amount  to 

about  twenty  millions  of  pounds  sterling,  which  if  paid 

in  gold  coin  would  weigh   about  157  tons,  and  would 

require  nearly  eighty  horses  for  conveyance.      If  paid 

in  silver  the  weight  would  be  increased  to  more  than  2500 

tons.     For  the  conveyance  and  custody  of  very  moderate 

sums  in  coin  or  bullion,  individuals,  or  even  large  banks, 

resort  to  the  aid  of  the  Bank  of  England,  whose  officials 

are  experienced  in  the  matter,  and  have  all  facilities. 

I  find  that  a  Bank  of  England  note  weighs  about  20^ 


BEPBESENTATIVE   MONEY.  203 

grains  (1J  grams),  whereas  a  single  sovereign  weighs 
about  123  grains,  and  the  note  may  represent  five,  ten, 
fifty,  a  thousand,  or  ten  thousand  such  sovereigns  with 
slight  differences  in  the  printing.  If  we  were  obliged 
to  handle  a  medium  of  exchange  actually  embodying 
value,  it  would,  ere  now,  have  been  necessary  to  employ 
precious  stones,  or  some  metal  much  more  rare  and 
precious  than  gold.  But  the  use  of  representative  docu- 
ments is  becoming  so  general  in  the  most  advanced 
commercial  countries,  that  the  portability  of  metallic 
money  is  a  question  of  very  minor  importance.  Gold 
already  acts  in  England  only  as  change  for  notes,  and 
the  question  will  arise  whether  it  will  long  be  needed 
even  for  that  purpose. 

Saving  of  Interest. 

A  further  and  very  potent  motive  for  employing  re- 
presentative tokens  or  notes,  consists  in  the  saving  of 
interest  and  capital,  which  is  effected  by  substituting  a 
comparatively  valueless  material  in  place  of  costly  gold 
and  silver.  Whenever  a  nation  is  in  great  straits  for 
want  of  revenue,  there  is  a  great  temptation  to  treat  the 
metallic  currency  as  a  treasure  to  be  temporarily 
borrowed  for  the  necessities  of  the  state.  The  ancient 
Glreeks  understood  this  as  well  as  the  modern  English, 
Italians,  or  Americans.  Dionysius,  on  this  ground, 
obliged  the  Syracusans  to  accept  tin  tokens  in  place  of 
silver  coins,  worth  four  times  as  much  in  metallic  value. 
In  the  book  on  Economics,  attributed  to  Aristotle,  we 


204  MONEY. 

are  told  that  Timotheus  the  Athenian  persuaded  the 
soldiers  and  merchants  to  receive  copper  money  in  place 
of  silver,  promising  to  exchange  it  for  silver  coins  at 
the  close  of  the  war.  The  Clazomenians  made  a  similar 
issue  of  token  money  avowedly  for  the  sake  of  the 
interest  thereby  saved.  Being  unable  to  pay  twenty 
talents  due  to  some  mercenary  troops,  they  were  under 
the  necessity  of  paying  four  talents  a  year  as  interest. 
They  fell  upon  the  device  of  coining  iron  tokens  to  the 
nominal  amount  of  twenty  talents,  which  they  obliged 
the  citizens  to  take  in  place  of  silver  coin.  The  silver 
thus  obtained  was  used  for  the  immediate  discharge 
of  the  debt,  and  there  was  a  spare  annual  revenue 
of  four  talents,  formerly  absorbed  in  the  payment  of 
interest,  which  now  enabled  them  in  a  few  years  to 
redeem  the  token  money.  Closely  parallel  to  this  is 
the  case  of  the  Guernsey  Market,  which  was  built 
without  apparent  cost.  Daniel  le  Broc,  the  governor 
of  the  island,  determined  to  build  a  market  in  St.  Peters, 
but  not  having  the  necessary  funds,  issued  under  the 
seal  of  the  island  four  thousand  market  notes  for  one 
pound  each,  with  which  he  paid  the  artificers.  When 
the  market  was  finished  and  the  rents  came  in,  the  notes 
were  thereby  cancelled,  and  not  an  ounce  of  gold  was 
employed  in  the  matter.  There  is,  however,  no  mystery 
in  this  advantage  of  paper  money. 

Daniel  le  Broc,  by  issuing  his  market-notes,  drove 
an  equivalent  amount  of  gold  out  of  circulation,  and 
thus  effected  a  kind  of  forced  loan  out  of  the  metallic 
currency  of  the  island,  without  paying  any  interest  for 


REPRESENTATIVE   MONEY.  205 

it.  A  similar  gain  of  interest  accrues  upon  all  paper 
notes  so  far  as  their  amount  exceeds  the  gold  held  in 
readiness  to  pay  them.  The  private  and  joint  stock 
banks  of  issue  in  England  in  this  way  enjoy  the  interest 
upon  a  sum  of  about  six  millions  and  a  half  sterling,  the 
Scotch  banks  upon  two  millions  and  three  quarters,  and 
the  Irish  banks  upon  more  than  six  millions.  The  issue 
of  paper  representative  .money  is  beneficial  to  all  parties, 
provided  that  it  be  conducted  upon  a  sound  method  of 
regulation,  a  subject  upon  which  the  greatest  differences 
of  opinion  exist. 


MONEY. 


CEAPTEB  XVII. 

THE  NATURE  AND  VARIETIES  OP  PROMISSORY  NOTES. 

Before  attempting  to  come  to  any  conclusion  as  to  the 
best  mode  of  regulating  the  issue  of  promissory  notes, 
we  must  carefully  analyse  the  differences  which  may 
exist  between  one  promise  and  another.  What  seems  at 
first  sight  a  very  slight  and  subtle  distinction,  may  be 
found  to  lead  to  important  results.  He  who  issues  a 
representative  or  promissory  document,  engaging  to  give 
a  certain  quantity  of  a  defined  commodity  in  return 
for  the  document  when  presented,  may  really  make  any 
one  of  three  distinct  engagements. 

1.  He    may    promise    to    keep   a  certain  identical 
article  in  his  possession  until  it  is  called  for. 

2.  He   may   engage    to    have  in  his  possession  a 
certain  amount  of  commodity  ready  to  meet  the  pro- 
missory notes,  without  distinguishing  between  portion 
and  portion  of  a  similar  substance. 

3.  The    undertaking  may  be  merely  to  the   effect 
that  the  required  commodity  shall  be  forthcoming  when 
the  note  is  presented,  no  covenant  being  made  as  to  the 
quantity  to  be  held  in  stock  for  the  purpose. 


THE  NATURE  AND  VARIETIES  OF  PROMISSORY  NOTES.  207 

Specific  Deposit  Warrant. 

The  most  satisfactory  kind  of  promissory  document 
is  the  first,  which  is  represented  by  bills  of  lading,  pawn- 
tickets,  dock-warrants,  or  certificates  which  establish 
ownership  to  a  definite  object.  A  bill  of  lading  entitles 
the  legal  holder  of  it  to  certain  cases  or  packages  of 
goods,  described  by  marks,  numbers,  dimensions,  or 
otherwise.  The  ship-master  signing  such  a  bill  is 
obliged  to  retain  the  identical  cases  committed  to  his 
care,  until  he  delivers  them  up  in  return  for  the  bill  of 
lading  at  the  close  of.  his  voyage.  Dock-warrants  are 
of  the  same  character,  being  receipts  for  packages  of 
goods  deposited  in  the  London  or  other  dock  ware- 
houses. The  holder  of  a  dock-warrant  has  Siprima  facie 
claim  to  the  pipes  of  "wine,  bales  of  wool,  hogsheads  of 
sugar,  or  other  packages  named  thereon.  Transfer  01" 
the  warrant  by  endorsement  or  otherwise,  as  required  by 
law  and  custom,  is  accounted  a  transfer  of  the  owner- 
ship of  the  goods.  The  important  point  concerning 
such  promissory  notes  is,  that  they  cannot  possibly  be 
issued  in  excess  of  the  goods  actually  deposited,  unless 
by  distinct  fraud.  The  issuer  ought  to  act  purely  as  a 
warehouse-keeper,  and  as  possession  may  be  claimed 
at  any  time,  he  can  never  legally  allow  any  object 
deposited  to  go  out  of  his  safe  keeping  until  it  is 
delivered  back  in  exchange  for  the  promissory  note. 


208  MONEY. 

General  Deposit  Warrant. 

We  pass  to  the  case  in  which  the  issuer  of  a  pro- 
missory document  engages  to  keep  on  hand  goods 
exactly  equivalent  in  quantity  and  quality  to  what  are 
specified  thereon,  without  taking  note  of  individual 
parcels.  In  many  cases  commodities  are  so  homo- 
geneous that  there  seems  to  be  no  need  to  distinguish 
parcel  from  parcel,  or  to  restore  the  identical  portion 
deposited.  Thus  the  keeper  of  a  pig-iron  store  in 
Glasgow  receives  large  quantities  of  pig  iron,  of  several 
brands,  and  issues  corresponding  warrants  representing 
ownership  therein.  As  no  difference,  however,  is  known 
to  exist  between  different  portions  of  iron  of  the  same 
brand,  it  was  the  practice  in  former  years  not  to  allot 
one  heap  of  pigs  to  each  warrant,  but  simply  to  retain  a 
stock  of  each  brand  equal  in  weight  to  the  aggregate 
amount  due  on  outstanding  warrants.  More  recently  a 
better  system  has  been  introduced,  and  each  specific  lot 
of  iron  has  been  marked  and  set  aside  to  meet  some 
particular  warrant.  The  difference  seems  to  be  slight, 
but  it  is  really  very  important,  as  opening  the  way  to  a 
lax  fulfilment  of  the  contract.  Misunderstandings  occa- 
sionally arise  upon  this  point  in  other  trades.  For  in- 
stance, a  cotton  merchant  in  Liverpool,  a  few  years  since, 
obtained  a  loan  of  money  upon  the  security  of  cotton 
in  his  possession,  and  a  court  of  law  was  subsequently 
called  upon  to  decide  whether  he  had  mortgaged  certain 
individual  bales  of  cotton,  and  undertaken  to  retain 
them  until  the  loan  was  repaid,  or  whether  he  had 


THE  NATURE  AND  VARIETIES  OP  PROMISSORY  NOTES.  209 

merely  engaged  to  have  in  his  hands  an  equal  quantity 
of  cotton  of  the  same  quality.  I  have  heard  that  carry- 
ing and  warehousing  companies  are  sometimes  careless 
about  distinction  of  parcel  and  parcel.  If  they  are 
continually  conveying  or  holding  portions  of  exactly  the 
same  goods,  flour  from  the  same  miller,  coal  from  the 
same  seam,  they  will  sometimes  deliver  out  the  required 
quantity  of  the  same  sort  of  goods,  irrespective  of  its 
being  the  identical  portion  delivered  to  them  for  con- 
veyance or  safe  custody. 

Difference  between  a  Special  and  a  General  Promise. 

The  great  importance  of  the  distinctions  pointed  out 
in  the  last  section  will  be  easily  apparent.  He  who 
has  made  a  special  promise  to  give  definite  parcels  of 
goods  in  return  for  particular  individual  papers,  cannot 
issue  any  such  promissory  papers  without  holding  corre- 
sponding goods.  If  he  does  so,  he  will  be  continually 
liable  to  be  convicted  of  fraud  or  default  by  the  pre- 
sentation of  a  particular  document.  If  the  promises 
made  by  him,  however,  are  only  general  ones,  any 
promissory  document  can  be  met  by  any  portion  of 
commodity  of  the  proper  quality,  and  it  will  be  neces- 
sary to  present  most  or  all  of  the  documents  in  order 
to  disclose  default.  The  way  is  thus  opened  for*  the 
speculative  issue  of  promissory  notes.  The  receiver  of 
deposits,  finding  that  a  large  portion  of  the  deposited 
commodity  always  remains  on  hand,  may  proceed  to 
use  it  in  trade,  only  keeping  so  much  as  may  meet 


210  MONEY. 

current  demands.  So  long  as  he  does  fulfil  promises 
no  harm  seems  to  be  done ;  but  experience  proves  that 
there  will  always  be  a  certain  proportion  of  persons 
who,  in  such  circumstances,  will  not  act  so  discreetly 
as  to  be  in  a  position  to  redeem  all  their  engagements. 

Moreover,  it  now  becomes  possible  to  create  a  ficti- 
tious supply  of  a  commodity,  that  is,  to  make  people 
believe  that  a  supply  exists  which  does  not  exist.  The 
possessor  of  a  promissory  note  or  warrant  regards  the 
document  as  equivalent  to  the  commodity  named  thereon. 
It  is  only  necessary  then  to  print  off,  fill  up,  and  sign 
an  additional  number  of  such  notes  in  order  to  have  a 
corresponding  supply  of  commodity  to  sell.  It  is  true 
that  the  issue  of  promises  involves  their  fulfilment  at 
a  future  day;  but  the  future  is  unknown,  and  the 
issuer  may  believe  that  before  the  fulfilment  is  likely 
to  be  demanded  the  price  of  the  commodity  will  have 
fallen.  Thus,  if  pig-iron  warrants  could  be  issued  in 
unlimited  quantities  (irrespective  of  the  stocks  actually 
in  the  stores  at  Glasgow),  an  unscrupulous*  band  of 
speculators  might  perhaps  make  large  profits  by  selling 
great  quantities  of  iron  for  future  delivery.  After  sud- 
denly and  excessively  depressing  the  price  of  pig-iron 
they  might  succeed  in  gradually  buying  up  enough  at 
lower  prices  to  meet  the  warrants  when  presented.  This 
kind^pf  "bear"  operations  has  certainly  been  successful 
in  other  markets. 

About  ten  years  ago  it  became  the  practice  to  rig 
the  market  as  regards  the  shares  of  particular  joint-stock 
banking  companies.  A  party  would  be  formed,  perhaps 


THE  NATURE  AND  VARIETIES  OF  PROMISSORY  NOTES.     211 

owning  none  of  the  shares  of  the  selected  company,  and 
they  would  proceed  to  sell  considerable  quantities  of 
the  shares,  hoping  so  to  damage  the  reputation  of  the 
company  and  lower  the  value  of  the  stock  as  to  be 
able  to  buy  up  enough  before  delivery  would  be  required. 
This  noxious  kind  of  speculation  was  checked  by  an 
Act  of  Parliament  (30  Victoria,  c.  29,  1867),  which  now 
requires  the  seller  of  bank  shares  to  specify  the  numbers 
or  the  registered  proprietors  of  the  shares  which  he  is 
selling  for  future  delivery. 

It  might  be  urged,  indeed,  that  there  is  a  natural 
right  belonging  to  all  persons  to  make  promises,  if  they 
can  thereby  benefit  themselves.  Any  one  can  accept  a 
bill,  thereby  promising  to  deliver  money  at  a  future  day. 
It  is  quite  common  to  make  contracts  involving  the 
delivery  of  government  stock,  or  of  cotton  or  corn 
expected  to  arrive  by  sea,  before  delivery  becomes  due. 
But  we  must  remember  that  all  laws  and  all  social 
relations  are  devised  to  secure  the  greatest  good  of  the 
the  greatest  number.  If  a  right  to  make  all  promises 
be  recognized  by  law,  it  must  be  because  the  right  is 
beneficial  to  society,  and  it  is  the  recognition  by  law 
which  makes  it  a  right.  If,  on  the  contrary,  it  be 
found  by  experience  that  freedom  of  making  and  selling 
promises  in  a  particular  way  gives  scope  to  illegitimate 
speculation,  or  otherwise  injures  society  more  than  it 
produces  benefit,  the  law  ought  certainly  to  restrict  this 
freedom  and  regulate  the  matter  for  the  good  of  the 
community.  The  whole  matter,  in  short,  is  one  of 
expediency.  It  used  to  be  held  as  a  general  rule  of  law, 


212  MONET. 

that  any  present  grant  or  assignment  of  goods  not  in 
existence  is  without  operation.  Though  the  rule  seems 
to  be  generally  disregarded,  there  are  many  cases  in 
which  it  might  be  advantageously  enforced. 

Pecuniary  Promissory  Notes. 

Applying  these  considerations  to  the  special  matter  of 
money,  we  find  that  pecuniary  promises  are  nearly 
always  of  a  general  kind.  He  who  undertakes  to  pay 
a  sum  of  money  on  a  future  day,  rarely  specifies  the 
individual  coins  which  will  be  paid.  In  fact  the  Coinage 
Act,  in  defining  legal  tender,  makes  any  sovereigns, 
shillings,  and  pence,  duly  coined  and  of  proper  weight, 
a  discharge  for  a  corresponding  sum  named  in  a  con- 
tract. It  is  true  that  just  as  pipes  of  wine  are  ware- 
housed in  the  London  docks,  cases  of  gold  and  silver 
bullion  or,  it  may  be,  of  foreign  or  English  coin,  are 
warehoused  in  the  vaults  of  the  Bank  of  England. 
In  fact,  imports  of  gold  and  silver,  at  whatever  port  in 
the  kingdom  they  may  arrive,  are  almost  always  sent  up 
for  delivery  at  the  bullion  office  of  the  bank,  which  acts 
precisely  as  if  it  were  a  dock  warehouse,  and  delivers 
the  packages  on  production  of  the  bills  of  lading.  These 
bills  of  lading  are  specific  promises,  and  may  yet  be 
passed  by  endorsement  from  one  person  to  another. 
Such  consignments  of  bullion,  however,  do  not  enter 
into  the  banking  accounts. 

A  Bank  of  England  note  is  neither  more  nor 
less  binding  upon  the  bank  authorities  than  a  bill 


THE  NATUKE  AND  VARIETIES  OF  PROMISSORY  NOTES.     213 

of  lading,  but  it  does  not  specify  the  bag  or  box  of 
money  to  be  employed  in  paying  it.  Almost  all  other 
-pecuniary  engagements  are  in  the  same  way  general 
engagements.  No  banker  could  make  any  profit  if  he 
were  obliged  to  put  away  the  sovereigns  deposited  by  a 
customer  until  that  customer  presented  a  cheque  for 
them,  nor  would  there  usually  be  sufficient  motive  for 
desiring  such  a  special  pledge.  The  idea  never  enters 
into  our  heads  in  mercantile  matters.  Disputes, 
however,  have  occasionally  arisen  upon  this  point. 
Some  people  have  a  peculiar  fancy  for  collecting 
particular  coins,  and  an  old  lady,  having  formed  a 
hoard  of  fourpenny  pieces,  died  after  bequeathing  them 
to  a  relative.  Although  wishing  to  keep  them  out  of 
respect  to  the  old  lady,  this  relative  was  in  want  of 
ready  cash,  and  desired  to  realize  their  value;  he 
thought  to  achieve  both  objects  by  pledging  them  with 
a  pawnbroker.  The  broker  readily  received  them,  but 
after  a  time  thoughtlessly  used  the  groats  as  change. 
When  the  pawn-ticket  was  presented  he  considered  that 
the  tender  of  the  equivalent  sum  in  sovereigns  and 
shillings  was  a  sufficient  discharge.  Here,  however,  the 
pledge  should  have  been  held  as  a  special  one. 

Now,  if  pecuniary  promises  were  always  of  a  special 
character  there  could  be  no  possible  harm  in  allowing 
perfect  freedom  in  the  issue  of  promissory  notes.  The 
issuer  would  merely  constitute  himself  a  warehouse- 
keeper,  and  would  be  bound  to  hold  each  special  lot  of 
coin  ready  to  pay  each  corresponding  note.  But  this  is 
not  the  case,  and  much  harm  may  arise  from  the  exces- 


214  MONEY. 

sive  issue  of  promises  to  pay  gold  on  demand.  The  gold 
market  may  be  rigged  as  well  as  the  iron  or  any  other 
special  market.  One  difference  is  that  the  gold  market  is 
the  most  extensive  of  all  markets,  so  that  a  great  many 
individuals  or  companies,  each  acting  under  the  separate 
impulse  of  self-interest,  must  over-issue  notes  in  order 
to  produce  any  appreciable  effect.  A  further  difference 
is  that  gold,  being  itself  the  measure  of  value,  the  rise  or 
fall  in  its  price  cannot  be  apparent  except  in  the  average 
fall  or  rise  in  the  price  of  many  commodities.  This 
subject  must  be  pursued  in  Chapter  XXIV. 

Principles  of  the  Circulation  of  Representative  Money. 

In  the  last  two  sections  of  Chapter  VIII.  (pp..  80-85), 
we  found  that  by  analyzing  the  motives  of  individuals  in 
receiving,  holding,  or  paying  away  metallic  money,  we 
could  arrive  at  certain  laws  of  circulation,  which  were 
amply  confirmed  by  experience.  It  was  also  pointed  out 
that  the  same  laws  might  be  extended  mutatis  mutandis, 
to  the  mixed  circulation  of  metallic  and  paper  money. 
Habit  is  almost  as  powerful  in  supporting  the  use  of 
representative  money  as  of  real  metallic  coins.  Persons 
who  have  long  been  accustomed  to  pay  away  certain 
pieces  of  paper  without  loss,  will  continue  to  regard  them 
as  good  currency  until  some  rude  shock  is  given  to  their 
confidence.  This  may  go  so  far  that  a  dirty  bit  of  paper, 
containing  a  promise  to  pay  a  sovereign,  will  be  actually 
preferred  to  the  beautiful  gold  coin  which  it  promises. 
The  currency  of  Scotland  is  a  standing  proof  of  this 


THE  NATURE  AND  VARIETIES  OF  PROMISSORY  NOTES.     215 

assertion ;  and  the  same  may  be  said  of  Norway,  where, 
until  1874,  no  gold  at  all  was  in  circulation,  and  notes 
for  one,  five,  or  ten  dollars  formed  the  principal  part 
of  the  currency. 

There  is  one  all-important  point  in  which  represen- 
tative differs  from  metallic  money ;  it  will  not  circulate 
beyond  the  boundaries  of  the  district  or  country  where 
it  is  legally  current  or  habitually  employed.  No  doubt 
Bank  of  England  notes  are  frequently  carried  abroad 
by  travellers,  and  are  in  most  places  readily  exchanged 
for  the  money  of  the  locality ;  but  they  never  circulate, 
and  are  treated  as  bills  upon  London,  forming  a  con- 
venient mode  of  remittance.  They  do  not  satisfy  a  debt 
from  this  to  another  country,  but  rather  create  it,  an 
English  bank-note,  in  the  hands  of  a  Paris  banker, 
representing  a  claim  which  he  has  upon  the  Bank  of 
England.  The  only  money  which  can  really  be  exported 
in  payment  of  debts  due  to  foreign  merchants  is  standard 
metallic  money.  Hence  paper  money  has  exactly  the 
same  capacity  for  driving  out  standard  money  that  light 
or  depreciated  coins  possess. 

In  the  case  of  inconvertible  notes  this  has  always 
been  most  obvious.  As  the  quantity  of  such  notes 
issued  progressively  increases,  as  almost  always  hap- 
pens, coin  must  be  exported,  otherwise  the  currency 
would  become  excessive.  But  when  most  of  the  coin 
is  gone,  need  of  it  begins  to  be  felt  for  making  foreign 
payments,  and  then  the  value  of  the  paper  falls  below 
that  of  the  coin  which  it  is  supposed  to  correspond  to. 
Many  persons  begin  to  hoard  the  coins  for  the  sake 


216  MONEY. 

of  anticipated  profit,  and  nothing  but  paper  is  soon  to 
be  found  in  circulation.  This  effect  of  paper  in  driving 
coin  out  of  use  has  been  manifested  over  and  over 
again,  as  in  the  time  of  the  assignats  of  the  French 
Eevolution,  the  suspension  of  specie  payments  at  the 
Bank  of  England  between  1797  and  1819,  and  the  late 
American  war.  One  of  the  most  recent  and  striking 
instances  is  to  be  found  in  Italy,  where  large  quantities 
of  beautiful  gold  and  silver  coins  had  been  struck  in  the 
years  1862  to  1865,  but  all  disappeared  very  rapidly 
from  circulation  as  soon  as  the  cours  force  of  paper 
money  was  proclaimed. 


LIBRARY  OF 

'2I3ID  K.  SMITE 

CHAPTEK  XVIII, 

METHODS  OF  REGULATING  A  PAPER  CURRENCY. 

WE  may  now  proceed  with  advantage  to  consider  the 
various  methods  on  which  the  issue  of  paper  money 
may  he  conducted.  This  question  is  perhaps  the  most 
vexed  and  dehatahle  one  in  the  whole  sphere  of  political 
economy ;  but,  by  carefully  adhering  to  the  analysis  of 
facts,  we  may  perhaps  get  a  view  of  the  subject  free 
from  the  great  perplexities  in  which  it  is  commonly 
involved.  The  elementary  principles  of  the  subject  are 
not  of  a  complex  character ;  and  if  we  hold  tenaciously 
to  those  principles,  we  may  perhaps  be  saved  from  that 
dangerous  kind  of  intellectual  vertigo  which  often 
attacks  writers  on  the  currency. 

The  state  may  either  take  the  issue  of  representative 
money  into  its  own  hands,  as  it  takes  the  coining  of 
money,  or  it  may  allow  private  individuals,  or  semi- 
public  companies  and  corporations,  to  undertake  the 
work  under  more  or  less  strict  legislative  control.  We 
will  afterwards  briefly  consider  the  relative  advantages 
of  government  and  private  issues,  but  in  either  case  we 
may  lay  down  the  following  series  of  methods  according 


218  MONEY. 

to  which  the  amount  of  issue  may  be  regulated,  and  the 
performance  of  the  promises  guaranteed. 

1.  The  Simple  Deposit  Method.     The  issuer  of  pro- 
missory notes  may  be  obliged  to  keep  a  stock  of  coin 
and  bullion  constantly  on  hand,  equal  in  amount  to  the 
aggregate  of  the  uncancelled  notes,  each  of  which,  being 
instantly  paid  on  presentation,  will  produce  a  corres- 
ponding decrease  of  the  reserve. 

2.  The  Partial  Deposit  Method.     Instead  of  being 
obliged    to    keep    the  whole    of    the    precious  metals 
deposited  in  his  vaults,  the  issuer  may  be  allowed  to 
invest  a  fixed  amount  in  government  funds,   or  other 
safe  profitable  securities. 

3.  The  Minimum  Reserve  Method.      The  issuer  may 
be  bound  to  have  on  hand  under  all  circumstances  a 
fixed  minimum  amount  of  coin  and  bullion. 

4.  The  Proportional  Reserve  Method.      The  reserve 
may  be  made  to  vary  with  the  amount  of  outstanding 
notes,  being,  say,  at  least  one-third  or  one-fourth  of  the 
total. 

5.  The  Maximum  Issue  Method.     Permission  may  be 
given  to  issue  notes  not  exceeding  in  the  aggregate  a 
fixed  amount,  prohibitory  penalties  being  imposed  upon 
any  breach  of  this  restriction. 

6.  The    Elastic   Limit   Method.      A  limit    may   be 
assigned  to  the  aggregate  amount  of  notes,  as  in  the 
last  method,  but  the  penalties  on  the  excessive  issue 
may  be  intentionally  made   so  light,  that  the  issuei 
will  under  some  circumstances  prefer  to  pay  the  penalty 
rather  than  restrict  his  issues. 


METHODS  OF  REGULATING  A  PAPER  CURRENCY.    219 

7.  The  Documentary  Reserve   Method.     The  reserve 
of  property  which  the  issuer  is  required  to  keep  may 
consist  not   of   gold   or  silver   coin  or  bullion,   but  of 
government  funds,  bonds,  shares,  or  other  documentary 
securities. 

8.  The  Real  Property  Reserve   Method.     Instead  of 
merely  documentary  property,  the  issuer  may  be  allowed 
to  treat  various  property,  such  as  land,  houses,  ships, 
railway  shares,  etc.,  as  his  reserve  of  wealth  to  meet 
engagements. 

9.  The  Foreign  Exchanges  Method.     Some  important 
bank   may  be   allowed   to  issue   convertible   notes   on 
the  understanding  that  it  will  not  increase  the  amount  in 
circulation  so  long  as  the  foreign  exchanges  are  against 
the  country,  and  render  the  export  of  specie  profitable. 

10.  The  Free  Issue  Method.    The  business  of  issuing 
promissory  notes  may  be  left  open  to  the  free  competi- 
tion of  all  individuals,  free  from  any  restrictions  or  con- 
ditions, except  such  laws  as  apply  to  all  commercial 
contracts  and  promises. 

11.  The  Gold  Par  Method.      Paper   money  may  be 
issued,  bearing  the  appearance  of  promissory  notes,  but 
inconvertible  into  coin.     The  issue  being  restricted  as 
long  as  any  premium  on  gold  is    apparent,   the  paper 
money  may  be  thus  maintained  equal  in  value  to  the 
coin  which  it  nominally  represents. 

12.  The  Revenue  Payments   Method.      Inconvertible 
paper  money  may  be  freely  issued,  but  an  attempt  may 
be  made  to  keep  up  its  value  by  receiving  it  in  place 
of  coin  in  the  payment  of  taxes. 


220  MONEY. 

13.  The  Deferred  Convertibility  Method.     Notes  may 
be  issued  promising  to  pay  metallic   money   at   some 
future  day,  either  definitely  fixed  or  dependent  upon 
political  or  other  contingent  events. 

14.  The  Paper  Money  Method.     Lastly,  those  who 
coin  apparent  promissory  notes  may  be  entirely  absolved 
from  the  performance  of  their  promises,  so  that  the 
notes  circulate  by  force  of  habit,  by  the  command  of 
the  sovereign,  or  in  consequence  of  the  absence  of  any 
other  medium  of  exchange. 

Although  I  have,  in  the  above  statement,  enumerated 
no  less  than  fourteen  distinct  methods  of  managing 
the  issue  of  paper  currency,  it  is  by  no  means  certain 
that  other  methods  have  not  been  employed  from 
time  to  time.  There  may  be,  in  fact,  an  almost  un- 
limited number  of  devices  for  securing  the  perform- 
ance of  promises,  or  for  rendering  the  performance 
unnecessary.  Moreover,  these  methods  may  be  com- 
bined together  in  almost  unlimited  variety.  The  reserve 
may  be  required  to  be  partially  in  the  form  of  specie, 
and  partially  in  documentary  securities,  or  real  pro- 
perty. A  banker  may  be  allowed  to  issue  a  certain  fixed 
amount  of  notes  without  any  condition  as  to  reserves, 
and  to  issue  further  notes  on  the  Deposit  Method. 

It  would  obviously  require  a  very  large  volume  to 
enter  at  all  in  an  adequate  manner  upon  a  description  of 
these  methods,  their  relative  advantages  or  defects,  and 
the  ways  in  which  they  have  been  combined  and  carried 
into  effect  at  different  times  and  places.  I  must  there- 


METHODS   OF   REGULATING   A   PAPER    CURRENCY.          221 

fore  confine  myself  in  this  small  book  to  a  very  concise 
discussion  of  this  most  extensive  subject. 

1.  Simple  Deposit. 

This  method  is  perfectly  represented  by  the  ancient 
deposit  banks  in  the  Italian  commercial  republics,  by 
the  banks  of  Amsterdam  and  Hamburg,  or  by  the  London 
goldsmiths,  so  long  as  they  only  acted  as  safe  keepers 
of  the  specie  committed  to  their  care.  Notes  issued  on 
this  system  have  a  purely  representative  character,  like 
dock  warrants  or  pawn  tickets,  as  I  have  already  fully 
explained.  The  performance  of  promises  is  rendered 
certain  so  far  as  legislation  can  provide  for  it.  The 
amount  of  such  a  currency  will  vary  exactly  like  that  of 
a  metallic  currency,  and  there  can  be  no  fear  of  paper 
replacing  specie,  and  driving  it  out  of  the  country, 
because  the  specie  must  be  in  the  vaults  of  the  issuing 
bank  before  the  notes  are  issued. 

At  the  same  time  the  advantages  of  the  method  are 
comparatively  slight,  because  the  use  of  paper  re- 
presentatives  merely  saves  the  abrasion  of  coin,  and 
the  trouble  and  risk  of  carrying  it  about  and  counting 
it.  The  community  loses  the  interest  of  the  whole  sum 
held  in  pledge,  and  this  forms  by  far  the  largest  part 
of  the  cost  of  the  currency,  as  we  have  seen  (p.  164).  The 
coin,  too,  may  be  safer  in  the  hands  of  the  people. 
When  lying  apparently  useless  within  the  reach  of  an 
arbitrary  government,  it  often  proves  an  irresistible 
temptation.  Charles  I.  seized  the  money  in  the  Tower. 


222  MONEY. 

When  the  French  invaded  Holland  in  1 795,  a  large  part 
of  the  specie  supposed  to  be  deposited  in  the  vaults  of 
the  bank  of  Amsterdam  was  not  forthcoming,  having 
been  secretly  lent  to  the  Dutch  East  India  Company, 
and  the  city  authorities.  The  Eussian  government 
diligently  collected  a  bank  reserve  in  the  citadel  of  St. 
Petersburg,  which  was  under  the  cognizance  of  members 
of  the  Exchange,  until  the  troubles  of  1848  forced  the 
emperor  to  assume  the  control  himself.  In  innu- 
merable instances  governments,  including  the  English 
government  in  1797,  have  made  use  of  bank  deposits, 
under  the  form  of  suspending  specie  payments. 

2.  Partial  Deposit. 

The  Bank  of  England,  under  the  Bank  Charter  Act 
of  1844,  perfectly  represents  this  method.  For  each 
additional  five-pound  note  which  is  put  forth  out 
of  the  issue  department,  gold  to  the  weight  of  616'37 
grains  must  be  deposited  in  that  department.  The 
whole  amount  of  gold,  however,  retained  in  the  vaults 
is  less  by  £15,000,000  than  the  outstanding  notes,  this 
constant  difference  being  covered  by  documentary  secu- 
rities, and  by  a  sum  of  about  eleven  millions  which  the 
bank  lends  to  the  government  without  interest.  Under 
this  arrangement  we  secure  all  the  advantages  of  the 
simple  deposit  system,  while  the  community  gains  the 
interest  amounting  to  about  £445,000,  of  which  the 
government  receives  £188,000  per  annum.  The  cha- 
racter of  the  contract  between  the  government  and 
the  bank  is  of  too  intricate  a  nature  to  be  readily 


METHODS    OF    REGULATING   A    PAPEE    CURRENCY.          223 

fathomed  or  described,  but  it  substantially  amounts  to 
the  government  borrowing  the  larger  part  of  the  fifteen 
millions  of  deposits,  and  allowing  the  bank  to  use  the 
rest  to  cover  the  cost  of  printing  and  managing  the  note 
circulation.  I  shall  treat  of  this  system  again  in  Chapter 
XXIV.  The  Partial  Deposit  method  is  the  basis  of  the 
new  law  concerning  the  issue  of  notes  in  the  German 
empire,  in  combination  with  the  Elastic  Limit  method, 
which  possibly  constitutes  an  improvement. 

3.  Minimum  Reserve. 

One  mode  of  guaranteeing  the  payment  of  notes, 
which  might  be  suggested,  would  consist  in  obliging 
the  issuers  to  keep  on  hand  a  stock  of  specie,  which 
is  never  to  be  allowed  to  fall  below  a  certain  fixed 
amount.  This  would  be  like  recommending  a  man 
to  avoid  impecuniosity  by  always  keeping  a  shilling 
in  his  pocket.  The  fact  that  the  minimum  amount 
must  be  kept  in  the  vaults  renders  it  unavailable  for 
meeting  demands  when  they  come.  There  can  be  no 
use  in  such  a  reserve  unless  there  be  a  power  exercised 
by  the  legislature  or  executive  government,  of  arbi- 
trarily suspending  the  operation  of  the  law  when  there 
is  a  run  upon  the  banks. 

4.  Proportional  Reserve. 

The  issuer  of  promises  to  pay  money  on  demand 
may  be  required  to  keep  a  reserve  of  coin  never  less 

than,  say,  one-fourth   of  the  whole  outstanding  notes, 
n 


224  MONET. 

This  is  analogous  to  the  method  on  which  the  National 
Bank  currency  of  the  United  States  was  lately  regulated, 
and  it  is,  perhaps,  better  to  enforce  the  keeping  of  a 
certain  amount  of  reserve  than  to  leave  the  matter 
entirely  to  the  discretion  and  good  faith  of  the  indi- 
vidual issuers.  As  the  banker  sees  his  reserve  running 
down  nearly  to  the  legal  limit,  he  will  be  compelled  to 
use  additional  caution,  in  order  to  avoid  a  breach  of 
the  law.  But  if  the  untoward  state  of  trade  and  credit 
causes  any  large  portion  of  the  outstanding  notes  to 
be  presented,  the  legal  tender  reserve  will  be  diminished 
in  a  greater  proportion  than  the  amount  of  notes,  which 
is  larger  in  absolute  quantity.  If  there  be  100,000 
dollars  of  outstanding  notes,  and  40,000  dollars  reserve, 
then  it  is  obvious  that  the  presentation  of  20,000  dollars 
of  notes  will  reduce  these  numbers  respectively  to 
80,000  dollars  of  outstanding  notes,  and  20,000  dollars 
of  reserve  ;  and  if  the  law  required  the  reserve  to  be  one- 
fourth  part  of  the  liabilities,  no  more  notes  could  be  paid. 
Thus,  from  the  moment  that  the  banker  allows  his  reserve 
to  touch  the  legal  minimum,  it  becomes  unavailable  to 
him,  except  by  a  breach  of  law,  and  it  may  be  said  that 
the  law  is  of  little  use  except  when  broken.  This 
system,  in  fact,  reduces  itself,  when  it  comes  into  opera- 
tion at  all,  to  the  Mininxum  Keserve  method  last  described. 
The  banker  cannot  touch  his  reserve  just  when  he  most 
wants  it,  and  the  deadlock  thus  occasioned  was  acutely 
felt  in  the  United  States  during  the  panic  of  1873. 

This  method  of  regulation  has,  moreover,  little  or  no 
effect  in  removing  the  motives  for  an  extension  of  the 


METHODS    OP   REGULATING    A    PAPER    CURRENCY. 

circulation.  The  greater  part  of  the  value  of  every 
additional  note  kept  in  circulation  is  a  gratuitous 
addition  to  the  loanable  capital  of  the  bank,  and  bears 
interest  as  long  as  it  can  be  kept  afloat. 

5.  Maximum  Issue. 

To  allow  a  bank  or  banks  to  issue  in  the  aggre- 
gate a  certain  fixed  amount  of  promissory  notes,  and 
no  more,  appears  to  me  quite  consistent  with  the 
principles  of  political  economy.  It  saves  interest  upon 
a  certain  portion  of  the  circulating  medium,  and  sup- 
plies a  convenient  and  economical  currency.  At  the 
same  time,  the  notes  issued  cannot  drive  gold  out  of 
the  country  beyond  a  fixed  amount.  It  is  strongly  urged 
by  Mr.  E.  Inglis  Palgrave  and  others,  that  the  limitation 
is  arbitrary,  and  that  the  people  want  more  money ;  but 
it  is  always  open  to  them  to  use  metallic  money  instead. 
The  limitation  imposed  is  not  upon  money  itself,  but 
upon  the  representative  part,  and  though  we  thereby 
forego  the  increased  saving  of  interest  upon  enlarged 
issues,  this  loss  may  be  balanced  by  the  freedom  from 
any  risk  of  producing  a  fictitious  abundance  of  gold. 
This  system  is  sufficiently  illustrated  in  the  170  banks 
of  England  which  are  still  allowed  to  issue  notes.  Sir 
Robert  Peel  provided,  in  the  Act  of  1844,  that  they  might 
continue  to  issue,  without  any  condition  as  to  reserve, 
the  same  quantity  of  notes  as  they  had  issued  on  the 
average  of  twelve  weeks  preceding  a  day  named.  If  any 
bank  exceeded  the  amount  thus  determined  it  was  to 
be  fined  a  sum  of  money  equal  to  the  average  excess  of 


226  MONEY. 

the  month ;  and  sworn  returns  of  their  circulations  were 
required  from  all  issuing  banks. 

6.  Elastic  Limit. 

The  above  is  the  best  name  which  I  can  find  for  a 
new  method  of  regulation  which  has  just  been  adopted 
in  the  Bank  Act  of  the  German  empire.  So  far  as 
regards  the  issue  of  bank-notes  the  banking  organiza- 
tion of  Germany  will  substantially  resemble  that  of 
England.  The  new  Imperial  Bank,  and  such  of  the 
state  or  other  banks  which  conform  to  the  require- 
ments of  the  law,  will  have  the  right  of  issuing  notes 
not  backed  by  gold  to  the  aggregate  sum  of  385  millions 
of  marks.  They  may  apparently  issue  any  further 
quantity  of  notes  in  exchange  for  a  deposit  of  gold  to  an 
equal  value.  So  far  the  method  is  precisely  that  of  the 
partial  deposit  already  described  (  p.  222).  Observing, 
however,  that  the  English  Bank  Charter  Act  has  on 
several  occasions  been  violated  to  prevent  a  panic, 
the  German  legislature  has  provided  that  more  bank- 
notes may  be  issued,  provided  that  a  tax  of  5  per  cent, 
be  paid  thereon.  It  is  intended  in  this  way  to  make  it 
unprofitable  for  any  bank  to  exceed  the  normal  limits. 
It  seems  likely  that  this  provision  will  work  well,  and 
form  an  improvement  on  our  method.  The  English 
government,  indeed,  has  always  deprived  the  Bank  of 
England  of  the  interest  on  any  excess  of  notes  which 
it  issued  during  a  suspension  of  the  Bank  Act,  but  the 
German  law  makes  the  limit  of  issue  elastic  in  all  cases, 
60  as  to  avoid  the  danger  of  panic. 


METHODS   OF   BEGULATING   A   PAPER    CUBEENCY.         227 

7.  Documentary  Reserve. 

It  might  seem  enough  in  order  to  ensure  the  con- 
vertibility of  notes,  that  the  bankers  issuing  them 
should  prove  their  possession  of  abundant  funds,  in 
the  form  of  government  stocks,  bonds,  exchequer  bills, 
rentes,  or  even  good  mercantile  bills,  sufficient  to  estab- 
lish the  perfect  solvency  of  the  firm.  If  a  considerable 
margin  be  left,  it  may  seem  impossible  that  the  notes 
should  not  ultimately  be  paid.  To  argue  in  this  way, 
however,  is  to  forget  that  bank-notes  are  promises  to  pay 
gold  or  legal  tender  metallic  money  on  demand,  and  that  to 
pay  the  notes  ultimately  is  not  to  pay  them  on  demand. 
With  such  a  reserve,  payment  can  only  be  made  in  any 
large  quantity  by  selling  the  stocks  and  bonds  for  metallic 
money ;  but  it  is  just  when  there  is  a  scarcity  of  gold 
and  silver,  that  notes  are  presented  for  payment.  No 
doubt  good  government  funds  and  good  bills  can  always 
be  sold  at  some  price,  so  that  a  banking  firm  with  a 
strong  reserve  of  this  kind  might  always  maintain  their 
solvency.  But  the  remedy  might  be  worse  for  the 
community  than  the  disease,  and  the  forced  sale  of  the 
reserve  might  create  such  a  disturbance  in  the  money 
market  as  would  do  more  harm  than  the  suspension  of 
payment  of  the  notes.  Payment  of  notes  on  demand 
implies  the  possession  of  adequate  gold  and  silver,  and 
if  there  be  not  sufficient  bullion  and  coin  in  the  country, 
no  paper  documents,  or  promises  to  pay  at  a  future  day, 
can  take  their  place. 


228  MONEY. 

8.  Heal  Property  Reserve. 

Many  currency  theorists  have  held,  that  in  securing 
the  repayment  of  notes  we  need  not  restrict  our- 
selves to  a  single  commodity  gold,  but  may  mortgage 
for  the  purpose,  land,  houses,  or  any  kind  of  fixed 
real  property.  The  celebrated  scheme  of  John  Law  was 
of  this  nature.  In  his  remarkable  tract  on  "  Money 
and  Trade  Considered,  with  a  Proposal  for  Supplying 
the  Na,tion  with  Money,"  published  in  1705,  he  sug- 
gests that  commissioners  should  be  appointed  to  "coin" 
notes  "to  be  received  in  payments  where  offered,"  that 
is,  I  presume,  as  legal  tender.  He  sets  forth  three 
alternative  modes  of  issuing  these  notes  on  land  security, 
the  first  and  simplest  being  to  lend  them  to  landowners 
at  the  ordinary  interest,  to  the  extent  of  one-half  or  two- 
thirds  of  the  value.  He  endeavours  to  provide  against 
depreciation  of  the  notes  by  taking  care  that  the  prices 
are  always  estimated  in  silver  money. 

The  assignats  of  the  French  Eevolutionary  Govern- 
ment represented  land  assigned,  namely,  portions  of  the 
confiscated  estates  of  the  Church.  They  were  to  be 
received  back  and  cancelled  as  the  lands  were  bought  by 
the  public ;  but,  as  the  price  of  the  land  was  not  fixed,  no 
proportion  was  established  between  land  and  paper,  and 
no  amount  of  land  could  prevent  the  assignats  from 
falling  as  they  did  to  one  two-hundredth  part  of  their 
original  value.  In  the  subsequent  issue  of  Mandats,  an 
attempt  was  made  to  fix  the  price  of  land  in  mandats, 
but  this  scheme  also  failed.  The  inconvertible  land 


METHODS   OF   REGULATING   A   PAPER   CURRENCY.         229 

mortgage  notes,  issued  by  Frederick  the  Great  to  recruit 
his  treasury  exhausted  by  wars,  were  of  somewhat  the 
same  nature,  but  bore  interest. 

Land  is  doubtless  one  of  the  best  kinds  of  security 
for  the  ultimate  repayment  of  a  debt,  and  is  therefore 
very  suitable  when  money  is  lent  for  a  long  time.  But 
representative  bank-notes  purport  to  be  equivalent  to 
gold  payable  on  demand,  and  nothing  is  less  readily 
convertible  into  gold  on  an  emergency  than  land.  In 
this  respect  a  reserve  of  real  property  is  worse  than  a 
reserve  of  exchequer  bills  or  consols. 

This  method  of  providing  paper  money  has  generally 
been  advocated  on  the  ground  that  the  quantity  of 
money  in  circulation  might  thus  be  greatly  increased, 
and  the  wealth  of  the  nation  augmented.  It  could 
readily  be  shown,  however,  that  an  increase  of  the 
money  in  circulation  will  lead  to  a  reduction  in  its  value. 
In  any  given  state  of  industry  only  a  certain  quantity 
of  circulating  medium  is  needed,  and  were  the  notes 
really  convertible  into  definite  quantities  of  land  or 
any  other  substantial  commodity,  the  excess  of  notes 
would  ultimately  be  presented  for  payment.  To  sup- 
pose that  the  currency  could  be  made  equal  in  aggregate 
value  to  any  large  part  of  the  lands  of  the  country  is 
evidently  absurd. 

9.  Regulation  ly  the  Foreign  Exchanges. 

A  theory  was  very  much  in  favour  among  bank 
directors  at  the  beginning  of  this  century  that  a  paper 


230  MONEY. 

currency  could  be  regulated  merely  by  watching  the 
rates  of  the  foreign  exchanges,  and  restricting  the  issue 
when  the  lowness  of  the  rates  and  the  export  of  specie 
showed  a  depreciation  of  the  paper.  This  was  one  of 
the  methods  proposed  in  opposition  to  ihe  celebrated 
Bullion  Report,  and  *a  summary  of  the  interminable 
discussions  on  the  subject  will  be  found  in  Mr.  Macleod's 
Treatise  on  Banking,  Yol.  II.  Chapter  IX. 

Regulation  by  the  foreign  exchanges  is  much  better 
than  no  regulation  at  all,  but  if  perfectly  carried  out 
it  would  give  exactly  the  same  results  as  the  deposit 
method,  and  is  only  a  loose  and  indirect  way  of  reach- 
ing the  same  end. 

10.  Free  Issue  System. 

There  is  a  school  of  economists,  both  in  this  country 
and  America,  who  uphold  the  expediency  of  allowing  all 
persons  to  issue  as  many  promissory  notes  payable  on 
demand  as  they  can  get  other  persons  to  accept.  They 
call  this  system  the  Free  Banking  system,  but  incorrectly, 
because  it  is  no  necessary  function  of  a  banker  to  issue 
promissory  notes,  and  a  great  many  banks  exist  in 
England  without  any  power  of  issue.  This  subject  will 
be  further  discussed  in  a  subsequent  chapter,  and  I  will 
only  add  here  that  under  the  system  of  unrestricted 
issue,  a  banker  is  bound  by  law  to  pay  a  note  issued  by 
him,  but  is  left  entirely  at  his  own  discretion  to  keep 
such  balance  of  specie  for  the  purpose  as  he  may  think 
proper.  As  a  general  rule,  no  doubt,  notes  thus  issued 


METHODS   OF   REGULATING   A   PAPER    CURRENCY.          231 

will  be  paid ;  but,  having  regard  to  the  great  fluctua- 
tions of  commerce,  which*  are  becoming  more,  rather 
than  less  marked,  there  will  occur  periods  when  a  pres- 
sure for  payment  of  notes  will  be  made.  Experience 
abundantly  shows  that  a  certain  number  of  individuals 
will  calculate  too  confidently  on  their  good  fortune,  and 
fail  to  carry  out  their  promises  and  intentions  'when 
the  critical  time  arives. 

11.  The  Gold  Par  Method. 

Assuming  an  inconvertible  paper  currency  to  be 
issued,  and  to  be  entirely  in  the  hands  of  government, 
many  of  the  evils  of  such  a  system  might  be  avoided  if  the 
issue  were  limited  or  reduced  the  moment  that  the  price 
of  gold  in  paper  rose  above  par.  As  long  as  the  notes 
and  the  gold  coins  which  they  pretend  to  represent  circu- 
late on  a  footing  of  equality,  they  are  as  good  as  if  con- 
vertible. Since  the  beginning  of  the  Franco-Prussian 
war,  the  Bank  of  France  appears  to  have  acted  success- 
fully on  this  principle,  and  the  inconvertible  notes  were 
never  depreciated  more  than  about  j-  or  1  per  cent,  in 
spite  of  the  vast  political  and  financial  troubles  of  France. 
But  this  is  one  of  the  very  few  cases  in  which  inconvert- 
ible paper  currency  has  not  been  seriously  depreciated. 
During  the  restriction  of  specie  payments  in  England, 
gold  was  bought  and  sold  at  a  premium  varying  up  to  25 
per  cent.,  yet  Fox,  Vansittart,  and  other  leading  men  of 
the  time,  declared  it  to  be  absurd  to  suppose  that  paper 
was  depreciated.  So  unaccountable  are  the  prejudices  of 


232  MONLY. 

men  on  the  subject  of  currency  that  it  is  not  well  to 
leave  anything  to  discretionary  management. 

12.  Convertibility  by  Revenue  Payments. 

In  many  instances  governments  have  tried  to  maintain 
the  value  of  a  paper  circulation  by  engaging  to  receive  it 
as  taxes,  or  even  rendering  its  use  for  this  purpose  obliga- 
tory. The  Eussian  government  when  issuing  assignats 
received  them  at  a  fixed  rate  in  place  of  copper  coin,  and 
required  that  at  least  one-twentieth  part  of  every  pay- 
ment was  to  be  thus  paid.  The  French  assignats  of  the 
Eevolution  were  also  received  at  the  public  treasuries. 
This  would  be  a  fair  method  of  securing  stability  of 
value  on  two  conditions  : — (1)  that  the  taxes  or  charges 
were  themselves  levied  according  to  a  fixed  tariff ;  and 
(2)  that  the  quantity  of  notes  issued  was  kept  within 
such  moderate  limits  that  any  one  wishing  to  realize  the 
metallic  value  of  the  notes  could  find  some  one  wanting 
to  pay  taxes,  and  therefore  willing  to  give  coin  for  notes. 
It  is  very  unlikely,  however,  that  these  conditions  could 
ever  be  fully  and  conveniently  realized  in  practice. 

The  United  States  greenback  currency  was  made 
receivable  for  all  United  States  stamps,  and  was  also 
to  be  received  in  payment  of  all  taxes  and  dues  in  sums 
of  certain  assigned  amounts,  excepting  Customs  dues. 
But  the  fact  that  some  notes  are  thus  withdrawn  will 
not  prevent  depreciation,  if  they  be  soon  paid  out  again 
with  additions  required  to  meet  the  pressing  expenditure 
of  a  government. 


METHODS    OF   REGULATING   A   PAPER   CURRENCY.         233 

In  a  small  way  postage  stamps  are  becoming  used  as 
currency  in  several  countries.  They  were  extensively 
used  in  the  earlier  years  of  the  American  war  as  the 
welJ-  known  fractional  currency.  They  are  now  a  re- 
cognized medium  of  payment  in  England,  being  repur- 
chased by  most  postmasters  at  a  discount  of  2|  per  cent, 
if  presented  in  a  piece  of  two  or  more  undivided  stamps. 
Independently,  however,  of  repurchase,  stamps  are  so 
continually  being  cancelled  by  use  in  postage,  that  their 
value  can  hardly  be  lowered  by  excess  of  quantity.  They 
form  a  convenient  and  costless  form  of  remittance  for  very 
small  sums,  say  from  a  halfpenny  to  five  shillings,  and 
little  or  no  objection  can  be  made  to  their  occasional  use 
as  change,  in  place  of  pence.  They  would,  however,  form 
a  very  bad  currency  if  circulated  to  any  great  extent. 

13.  Deferred   Convertibility. 

It  is  a  common  resource  for  insurrectionary  or  belli- 
gerent governments  in  want  of  funds  to  issue  documents 
promising  to  pay  cash  after  their  successful  establishment. 
When  interest  proportional  to  the  time  is  also  promised, 
these  notes  must  be  regarded  rather  as  bonds.  Of  such 
nature  were  those  issued  by  Kossuth  in  New  York  to  form 
a  Hungarian  fund,  to  be  paid  after  the  erection  of 
an  independent  Hungarian  government.  Similar  bonds 
were  signed  by  the  notorious  Walker,  as  President  of  the 
provisional  government  of  the  republic  of  Nicaragua. 
By  far  the  best  instance  of  this  kind  of  currency  is  fur- 
nished by  the  Confederate  States  treasury  notes,  the 


234  MONEY. 

early  issues  of  which  were  made  payable  six  months 
after  the  ratification  of  a  treaty  of  peace  with  the  United 
States,  and  further  issues  were  to  be  payable  two  years 
after  such  treaty. 

All  such  documents  may  be  considered  as  bills  of 
very  long  date  and  of  very  uncertain  value.  The  public 
spirit  of  a  people  in  time  of  war  often  enables  them  to  be 
put  afloat,  and  the  need  of  currency  keeps  them  in  circu- 
lation for  a  time,  but  their  value  undergoes  violent 
variations,  and  there  are  few  instances  in  which  such 
bills  have  been  eventually  paid. 

14.  Inconvertible  Paper  Money. 

Finally  we  come  to  the  undisguised  paper  money  issued 
by  government  and  ordered  to  be  received  as  legal  tender. 
Such  inconvertible  paper  notes  have  in  all  instances  been 
put  in  circulation  as  convertible  ones,  or  in  the  place  of 
such,  and  they  are  always  expressed  in  terms  of  money. 
The  French  mandats  of  100  francs,  for  instance,  bear 
the  ambiguous  phrase  "Bon  pour  cent  francs."  The 
wretched  scraps  of  paper  which  circulate  in  Buenos  Ayres, 
are  marked  "  Un  Peso,  Moneda  Corriente,"  reminding  one 
of  the  time  when  the  peso  was  a  heavy  standard  coin. 
After  the  promise  of  payment  in  coin  is  found  to  be 
illusory  the  notes  still  circulate,  partly  from  habit,  partly 
because  the  people  must  have  some  currency,  and  have 
no  coin  to  use  for  the  purpose,  or  if  they  have,  carefully 
hoard  it  for  profit  or  future  use.  There  is  plenty  of 
evidence  to  prove  that  an  inconvertible  paper  money,  if 


METHODS    OF   REGULATING   A   PAPER    CURRENCY.          235 

carefully  limited  in  quantity,  can  retain  its  full  value. 
Such  was  the  case  with  the  Bank  of  England  notes  for 
several  years  after  the  suspension  of  specie  payments 
in  1797,  and  such  is  the  case  with  the  present  notes  of 
the  Bank  of  France. 

The  principal  objections  to  an  inconvertible  paper 
currency  are  two  in  number. 

1.  The   great  temptations  which  it  offers  to   over 
issue  and  consequent  depreciation. 

2.  The    impossibility    of    varying    its    amount    in 
accordance  with  the  requirements  of  trade. 


Over  Issue  of  Paper  Money. 

It  is  hardly  requisite  to  tell  again  the  well-worn  tale 
of  the  over  issue  of  paper  money  which  has  almost 
always  followed  the  removal  of  the  legal  necessity  of 
convertibility.  Hardly  any  civilized  nation  exists,  except- 
ing some  of  the  newer  British  colonies,  which  has  not 
suffered  from  the  scourge  of  paper  money  at  one  time  or 
other.  Bussia  has  had  a  depreciated  paper  currency  for 
more  than  a  hundred  years,  and  the  history  of  it  may 
be  read  in  M.  Wolowski's  work  on  the  finances  of  Bussia. 
Bepeated  limits  were  placed  to  its  issue  by  imperial 
edict,  but  the  next  war  always  led  to  further  issues. 
Italy,  Austria,  and  the  United  States,  countries  where 
the  highest  economical  intelligence  might  be  expected 
to  guide  the  governments,  endure  the  evils  of  an  incon- 
vertible paper  currency.  Time  after  time  in  the  earlier 
history  of  the  New  England  and  some  of  the  other  states 


236  MONEY. 

now  forming  parts  of  the  American  Union,  paper  money 
had  been  issued  and  had  wrought  ruin.  Full  particulars 
will  be  found  in  Professor  Sumner's  new  and  interesting 
"History  of  American  Currency."  Some  of  the  greatest 
statesmen  pointed  to  these  results;  and  Webster's 
opinion  should  never  be  forgotten.  Of  paper  money 
he  says,  "  We  have  suffered  more  from  this  cause  than 
from  every  other  cause  or  calamity.  It  has  killed  more 
men,  pervaded  and  corrupted  the  choicest  interests  of 
our  country  more,  and  done  more  injustice  than  even 
the  arms  and  artifices  of  our  enemy." 

The  issue  of  an  inconvertible  money,  as  Professor 
Sumner  remarks,  has  often  been  recommended  as  a 
convenient  means  of  making  a  forced  loan  from  the 
people,  when  the  finances  of  the  government  are  in  a 
desperate  condition.  It  is  true  that  money  may  be  thus 
easily  abstracted  from  the  people,  and  the  government 
debts  are  effectually  lessened.  At  the  same  time,  how- 
ever, every  private  debtor  is  enabled  to  take  a  forced 
contribution  from  his  creditor.  A  government  should, 
indeed,  be  in  a  desperate  position,  which  ventures  thus  to 
break  all  social  contracts  and  relations  which  it  was 
created  to  preserve. 

Want  of  Elasticity  of  Paper  Money. 

A  further  objection  to  a  paper  money  inconvertible  into 
coin,  is  that  it  cannot  be  varied  in  quantity  by  the 
natural  action  of  trade.  No  one  can  export  it  or  import 
it  like  coin,  and  no  one  but  the  government  or  banks 


METHODS   OF   REGULATING  A  PAPER   CURRENCY.         287 

authorized  by  government  can  issue  or  cancel  it.  Hence, 
if  trade  becomes  brisk,  nothing  but  a  decree  of  the 
government  can  supply  the  requisite  increase  of  circu- 
lating medium,  and  if  this  be  put  afloat  and  trade  relapse 
into  dullness,  the  currency  becomes  redundant,  and  falls 
in  value.  Now,  even  the  best-informed  government 
department  cannot  be  trusted  to  judge  wisely  and  impar- 
tially when  more  money  is  wanted.  Currency  must  be 
supplied,  like  all  other  commodities,  according  to  the  free 
action  of  the  laws  of  supply  and  demand. 

Some  persons  have  argued  that  it  is  well  to  have  a 
paper  money  to  form  a  home  currency,  which  cannot  be 
drained  away,  and  will  be  free  from  the  disturbing  in- 
fluences of  foreign  trade.  But  we  cannot  disconnect 
home  and  foreign  trade,  except  by  doing  away  with  the 
latter  altogether.  If  two  nations  are  to  trade,  the 
precious  metals  must  form  the  international  medium 
of  exchange  by  which  a  balance  of  indebtedness  is  paid. 
Hence  each  merchant  in  ordering,  consigning,  or  selling 
goods  must  pay  regard  not  to  the  paper  price  of  such 
goods,  but  to  the  gold  or  silver  price  with  which  he  really 
pays  for  them.  Gold  and  silver,  in  short,  continue  to  be 
the  real  measure  of  value,  and  the  variable  paper  cur- 
rency is  only  an  additional  term  of  comparison  which 
adds  confusion. 


238  M02TJSY 


CHAPTEK  XIX. 

CREDIT    DOCUMENTS. 

MUCH  mystery  has  been  created  on  the  subject  of  money 
by  those  who  assert  vaguely  that  credit  can  replace  coins, 
and  that  we  have  only  to  print  sufficient  bills  and  other 
promissory  documents  in  order  to  have  an  abundant 
circulating  medium.  Credit  has  been  said  to  multiply 
property  and  to  perform  all  kinds  of  prodigies.  When 
we  analyze  its  nature,  however,  credit  is  found  to  be 
nothing  but  the  deferring  of  a  payment.  I  take  credit 
when  I  induce  my  creditor  to  consent  to  my  paying  a 
month  hence  what  might  be  demanded  to-day ;  and  I  give 
credit  when  I  allow  my  debtor  in  the  same  manner  to  put 
off  the  liquidation  of  his  debt.  Thus  credit  involves,  as 
Locke  very  accurately  said,  "the  expectation  of  money 
within  some  limited  time."  The  debts,  indeed,  may 
consist  of  a  definite  quantity  of  any  commodity.  I  may 
have  to  pay  corn,  pig  iron,  palm  oil,  cotton,  or  any  other 
staple  article,  but,  generally  speaking,  debts  are  debts  of 
legal  tender  money. 


CREDIT    DOCUMENTS.  239 

Measurement  of  Credit. 

In  order  to  measure  and  define  exactly  the  amount 
of  credit  which  is  given  or  received,  and  to  estimate  the 
present  value  of  a  debt,  we  must  take  into  account  at 
least  five  distinct  circumstances,  which  are  as  follows : — 

1.  The  amount  of  money  to  be  received. 

2.  The  probable  interval  of  time  elapsing  before  its 
receipt. 

3.  The  probability  that  it  will  then  be  paid. 

4.  The  rate  of  interest  likely  to  prevail  in  the  mean 
time. 

5.  The  legal  liabilities  which  it  creates  or  involves. 

Writers  upon  currency  have  been  too  much  accus- 
tomed to  mass  together  all  kinds  of  credit  documents, 
taking  no  account  of  the  important  results  which  may 
follow  from  very  slight  legal  or  customary  differences. 
No  doubt  every  kind  of  promise  to  pay  money  has  a 
certain  value,  but  the  degree  in  which  it  may  be  made 
available  to  facilitate  exchange  varies  exceedingly  accord- 
ing to  circumstances. 

Bank-notes. 

What  we  call  a  bank-note  is  a  promissory  note,  issued 
by  a  banker,  and  binding  him  to  pay  the  sum  named 
therein  to  the  bearer  immediately  upon  demand.  The 
note  is  transferable  by  delivery,  so  that  the  holder  is  like 
the  holder  of  a  coin,  the  owner  primd  facie,  and  as  such 
can  claim  the  fulfilment  of  the  promise  at  any  moment, 


240  MONEY. 

within  reasonable  hours,  without  inquiry.  The  failure  of 
the  banker  to  pay  the  note  when  presented  does  not 
create  any  liability  between  the  persons  through  whose 
hands  the  note  had  previously  passed,  so  that  the  note 
is  continually  employed,  like  metallic  money,  in  settling 
debts  and  removing  liabilities.  It  is  most  important  to 
observe  that  a  bank-note  being  payable  on  demand  bears 
no  interest,  and  is  never  bought  at  a  discount,  except 
when  the  ultimate  payment  is  doubtful.  Hence  the 
holder  of  a  note  has,  like  the  holder  of  ordinary  coins, 
no  motive  in  keeping  it,  except  to  make  future  pur- 
chases. If  a  man  has  more  notes  than  he  expects  to  pay 
away  in  the  next  week  or  two,  he  will  do  best  to  deposit 
them  in  a  bank,  where  they  will  be  safer  and  at  the  same 
time  bear  interest.  There  is  thus  an  inherent  tendency 
in  notes  to  circulate  like  coins,  and  to  be  kept  down  in 
amount  to  the  lowest  quantity  consistent  with  the  accom- 
plishment of  retail  purchases. 

Cheques. 

A  cheque  payable  to  bearer  is  an  order  addressed  to 
a  banker,  requiring  him  to  pay  the  sum  named  to  the 
bearer  of  the  cheque  on  demand.  Like  a  bank-note,  it 
bears  no  interest,  and  is  transferable  from  hand  to  hand 
without  any  formality,  so  that  the  holder  is  primd  facie 
the  owner.  If  there  be  no  doubt  at  all  as  to  the  credit 
both  of  the  drawer  and  of  the  bank  on  which  the  cheque 
is  drawn,  it  is  difficult  to  see  why  a  cheque  should  be 
inferior  to  a  bank-note  as  representative  money,  except 


CREDIT    DOCUMENTS.  241 

that  it  is  usually  drawn  for  an  odd  sum.  In  some  places 
cheques  have  been  so  used,  and  in  Queensland  at  the 
present  time,  in  the  absence  of  coins  and  notes,  the 
settlers  pay  their  men  in  small  bank  cheques,  which  are 
received  at  the  stores,  and  thus  become  the  circulating 
medium  of  the  colony.  Obvious  objections  to  this  use 
of  cheques  may  be  pointed  out. 

It  is  impossible  to  be  acquainted  with  the  cheque 
forms  of  all  banks,  the  signatures  of  those  who  draw 
them,  and  the  credit  of  the  drawers.  If  the  public  were 
in  the  habit  of  daily  receiving  and  paying  cheques 
without  minutely  inquiring  into  their  validity,  immense 
facilities  would  be  given  to  the  perpetration  of  fraud. 
Forgery  would  be  easy  but  hardly  requisite,  since  it 
would  be  better  to  obtain  possession  of  a  cheque  book,  and 
then  fill  up  cheques  for  amounts  exceeding  the  deposits 
in  the  banker's  hands.  Every  one  accepting  a  cheque 
thus  receives  it  at  the  risk  of  fraud  or  bankruptcy  on 
the  part  of  the  drawer.  There  is,  moreover,  the  pos- 
sibility of  failure  of  the  bank  on  which  it  is  drawn ;  for 
it  is  a  well-understood  point  of  law,  that  if  the  holder 
of  a  cheque  does  not  present  it  in  "  reasonable  time," 
that  is  before  the  close  of  business  hours  on  the  day 
following  the  receipt  of  the  cheque,  he  loses  his  claim 
against  the  drawer,  if  the  bank  on  which  it  is  drawn 
should  happen  to  fail.  The  reason  obviously  is  that  the 
drawer  loses  the  deposit  which  he  left  in  the  banker's 
hands  to  meet  the  cheque,  and  should  not  suffer  frorr 
the  holder's  want  of  diligence. 

The  salutary  effect  of  this  law  and  of  other  con- 


242  MONEY. 

ditions  is,  that  cheques  do  not  circulate  in  this  kingdom 
in  place  of  money,  but  are  usually  presented  within  one 
or  two  days  of  receipt.  Hence  they  come  to  serve  as 
mere  instruments  of  transfer  of  money,  and  involve  no 
considerable  length  of  credit.  Nothing  can  be  gained  by 
holding  an  ordinary  cheque,  for  there  is  no  interest,  and 
something  may  be  lost.  Beyond  the  mere  trouble  of 
presentation,  then,  there  is  no  motive  to  prevent  a 
holder  from  at  once  getting  coin  or  bank-notes  for  his 
cheque  which,  though  paying  no  interest,  are  safer.  Or 
still  better,  he  may  deposit  the  sum  at  his  bankers,  get 
a  low  interest  in  the  mean  time,  and  draw  a  new  cheque 
of  his  own  when  he  wishes  to  pay  the  money  away 
again.  Experience  shows  that  the  latter  is  the  most 
satisfactory  course,  the  money  being  usually  safer  and 
more  available  in  the  hands  of  a  good  banker  than 
elsewhere,  and  usually  paying  interest  all  the  time.  On 
this  foundation  is  erected  the  extensive  system  of  pay- 
ment which  will  be  described  in  the  next  chapter,  and 
which  may  be  called  the  Cheque  and  Clearing  System. 

There  are,  indeed,  many  varieties  of  cheques. 
Bankers'  cheques  are  those  drawn  by  one  banker  upon 
another,  and  are  used  as  a  means  of  remittance.  If 
both  the  bankers  concerned  are  of  perfect  credit,  and 
the  form  and  signature  can  be  verified,  such  cheques 
seem  to  me  to  be  in  no  way  inferior  to  bank-notes  as 
representative  money.  If  two  perfectly  well-known 
banks  were  to  arrange  to  draw  cheques  upon  each  other 
for  convenient  even  amounts,  and  to  issue  these  to  their 
customers,  it  would  effect  a  successful  evasion  of  the 


CREDIT    DOCUMENTS.  243 

law  against  the  unlimited  issue  of  notes.  So  great 
however  is  the  force  of  habit,  or  the  respect  for  law, 
that  no  such  attempt  is  made,  and  bankers'  cheques  are 
presented  almost  as  promptly  as  any  others. 

Certified  cheques,  as  employed  in  the  New  York 
trade,  are  a  still  nearer  approach  to  a  bank-note,  for 
they  are  cheques  which  have  been  marked  by  the 
bankers  on  which  they  are  drawn,  as  sure  to  be  paid 
on  presentation.  Either  the  banker  in  certifying  the 
cheque  has  funds  belonging  to  the  drawer  which  he  can 
retain  to  meet  it,  or  else  he  pledges  his  own  credit  that 
he  will  meet  the  cheque  in  any  case.  Such  cheques 
are  really  promissory  notes  of  the  banker,  and  I  can  see 
no  reasons  why  they  should  not  circulate  as  freely  as 
bank-notes,  except  that  they  are  drawn  for  odd  sums, 
and  present  few  safeguards  against  forgery.  The  cheques 
of  the  Cheque  Bank,  which  will  be  subsequently  con- 
sidered (Chapter  XXII.),  are  equivalent  to  certified 
cheques,  as  they  cannot  be  issued  except  against  de- 
posits which  are  retained  until  the  cheque  is  pre- 
sented. 

Of  late  years  the  practice  has  become  very  general 
of  making  cheques  payable  to  order  instead  of  to  bearer, 
and  of  crossing  them  so  as  to  necessitate  their  presenta- 
tion through  a  banker.  The  order  may,  indeed,  be 
discharged  by  an  open  endorsement,  which  renders  the 
cheque  again  payable  to  bearer,  but  there  remains  the 
possibility  of  a  forged  endorsement,  concerning  which 
difficult  points  of  law  have  arisen.  A  general  crossing 
need  not  interfere  appreciably  with  the  circulation  of  a. 


244  MONEY. 

cheque,  but  when  crossed  specifically  for  presentation 
through  a  particular  bank,  the  cheque  becomes  prac- 
tically an  order  to  credit  a  particular  individual,  who 
keeps  his  account  in  that  bank,  with  the  sum  of  money 
named. 


Bills  of  Exchange. 

A  bill  of  exchange  is  an  order  to  a  person  to  pay 
money  to  the  legal  holder  of  the  document  on  a  day 
indicated  therein.  If  payable  at  sight,  a  bill  does  not 
apparently  differ  from  a  cheque  or  draft  to  order,  except 
that  it  will  be  usually  drawn  upon  persons  of  less  credit 
than  well-known  bankers.  If  not  payable  at  sight,  the 
length  of  time  intervening  between  the  day  named  for 
payment  and  the  day  of  issue  may  vary  from  a  day  or 
two  upwards,  and  the  money  cannot  be  demanded  in  the 
mean  time.  Hence  a  bill  generally  bears  interest,  or 
rather  is  only  bought  at  such  a  discount  as  will  enable 
it  to  be  held  to  maturity  without  loss.  To  estimate  the 
liability  of  loss,  some  estimate  must,  be  formed  of  the  rate 
of  interest  likely  to  prevail  in  the  mean  time,  and  the 
value  of  the  bill  will  thus  vary  according  to  a  multitude 
of  circumstances.  Bills  of  exchange  may  be  made  pay- 
able to  the  bearer,  but  as  a  general  rule  they  are  payable 
to  a  specified  person,  and  transferred  by  endorsement  to 
other  specified  persons.  Thus  every  party  concerned 
with  a  bill  incurs  a  certain  liability,  which  is  not  removed 
until  it  is  duly  paid.  In  several  respects,  then,  a  bill 
may  differ  from  coined  money,  which  bears  no  interest, 


CREDIT    DOCUMENTS.  245 

and  discharges  instead  of  creating  liability  when  tendered 
in  payment  of  debts. 

Interest-bearing  Documents. 

It  is  extraordinary  that  few  writers  on  currency  have 
remarked  the  deep  difference  between  commercial  docu- 
ments which  bear  interest  and  those  which  do  not.  On 
this  point  turns  the  possibility  of  their  forming  repre- 
sentative money.  For  it  is  an  essential  characteristic 
of  coin  that  it  yields  no  profit  by  keeping  it  in  the 
pocket  or  the  safe.  I  may  be  obliged  to  keep  money 
ready  to  pay  debts,  but  in  the  mean  time  I  lose  the 
interest  which  I  might  receive  by  investing  the  sum  in 
the  funds,  in  bills,  bonds,  or  even  as  a  bank  deposit. 
Hence  money  must  be  considered  as  a  commodity  which, 
as  Chevalier  says,  is  in  a  constant  state  of  supply  and 
demand.  Every  one  is  always  trying  to  part  with  it  in 
a  profitable  purchase,  and  keeps  as  little  in  hand  as 
possible.  The  same  is  even  more  true  of  bank-notes, 
cheques,  circular  notes,  bills  at  sight,  and  a  few  other 
kinds  of  documents,  all  of  which  are  payable  on  demand 
at  any  moment,  so  that  no  amount  of  interest  can  be 
assigned  to  them.  Except  so  far  as  the  payment  may  be 
doubtful,  or  the  possession  of  the  documents  may  involve 
the  holder  in  legal  difficulties,  these  documents  have  the 
characteristics  of  coin,  and  the  amount  held  is  kept 
down  to  the  lowest  convenient  figure.  Interest-bearing 
documents,  on  the  contrary,  are  held  in  as.  large  quan- 
tities as  possible,  because  the  longer  they  are  held  thf 


246  MONEY. 

more  interest  accrues.  It  is  the  principal  business  of 
every  banker  to  hold  a  portfolio  full  of  good  bills,  which 
really  represent  the  investment  of  capital  in  industry. 
Government  bonds,  or  bonds  issued  by  public  companies 
and  corporations,  do  not  differ  from  commercial  bills 
except  in  the  fact  that  they  have  very  long,  or  even 
interminable,  usance,  and  that  the  interest  is  paid  at 
definite  intervals.  Such  bonds  represent  the  sinking 
of  capital  in  fixed  undertakings,  and  are  therefore  held 
as  property  by  individual  investors.  They  may  be 
bought  and  sold  for  money,  but  are  not  money  them- 
selves. They  rather  necessitate  than  replace  the  use 
of  money,  since  currency  must  have  been  paid  at  the  first 
investment,  and  is  repaid  by  degrees  at  the  periodical 
terms  fixed. 

A  number  of  schemists  have  urged  from  time  to 
time,  that,  in  addition  to  our  ordinary  currency,  there 
ought  to  be  an  interest-bearing  currency.  The  first 
small  issue  of  the  French  assignats  bore  interest,  and 
about  twelve  years  ago  the  United  States  government 
tried  a  similar  experiment,  which  was  soon  discontinued. 
Persons  have  proposed  to  coin  the  whole  National  Debt 
into  money,  so  that  instead  of  some  160  millions  of 
metallic  and  paper  currency  we  might  have  more  nearly 
a  thousand  millions.  Mr.  E.  Hill  has  published  a  form 
of  bank-note  entitling  the  holder  to  one  hundred  pounds 
on  demand,  and  to  interest  at  the  rate  of  3J  per  cent, 
up  to  the  time  when  it  is  presented,  the  amount  of 
interest  being  tabularly  stated  on  the  form.  It  is 
obviously  impossible,  however,  that  any  government 


CEEDIT    DOCUMENTS.  247 

should  issue  such  notes,  because  whenever  the  current 
rate  of  interest  rose  above  3J-,  and  the  value  of  the  note 
accordingly  fell  below  par,  a  profit  would  be  made  by 
presenting  the  notes  for  payment.  Thus  the  government 
issuing  such  notes  would  have  to  keep  a  large  quantity 
of  coin  in  reserve  to  meet  them,  and  would  at  the  same 
fime  be  paying  interest  on  the  whole  of  the  notes.  Thus 
there  would  be  a  loss  of  interest  upon  the  whole  reserve 
of  coin. 

The  English  government  has  rendered  the  National 
Debt  as  transferable  as  possible  by  authorizing,  in  terms 
of  the  Act  of  33  and  34  Victoria,  chapter  71,  the  issue 
of  stock  certificates.  These  certificates  resemble  the 
bonds  of  the  United  States  and  other  governments. 
They  have  coupons  for  the  payment  of  interest,  and 
when  not  filled  up  with  a  name  are  transferable  by 
delivery  like  bank  notes.  They  are  issued  in  exchange 
for  Three  per  Cent  Annuities  for  even  sums  of  not 
less  than  £50  and  not  more  than  £1000;  and  if  the 
right  to  an  annuity  could  be  passed  from  one  person  to 
another  as  currency,  these  certificates  would  allow  of  its 
being  done.  But  it  is  understood  that  a  comparatively 
small  amount  of  such  certificates  has  ever  been  applied 
for.  They  are,  I  believe,  used  to  some  extent  by  bankers 
and  others,  who  have  to  hold  sums  of  money  invested  in 
the  funds  for  short  periods,  and  can  save  the  cost  of 
transfers  by  the  use  of  certificates.  The  public  at  large 
are  JS&nd  to  prefer  the  old  method  of  registering  their 

stock  in  the  books  of  the  Bank  of  England. 
12 


248  MONEY. 

Definition  of  Money. 

Much  ingenuity  has  been  spent  upon  attempts  to 
define  the  term  money,  and  puzzling  questions  have 
arisen  as  to  the  precise  kinds  of  credit  documents  which 
are  to  be  included  under  the  term.  Standard  legal  tender 
coin  of  full  weight  is  undoubtedly  money,  and  as  con- 
vertible legal  tender  bank-notes  are  exactly  equivalent  to 
the  coined  money  for  which  they  may  at  any  moment 
be  exchanged,  it  has  often  been  considered  that  these 
also  may  be  included.  But  inconvertible  notes  are  often 
made  legal  tender  by  law,  and  can  discharge  in  inland 
trade  all  the  functions  of  money.  Are  they  not  then 
to  be  included?  The  question  will  next  arise  whether 
cheques  may  not  be  as  good  as  money. 

All  such  attempts  at  definition  seem  to  me  to  involve 
the  logical  blunder  of  supposing  that  we  may,  by  settling 
the  meaning  of  a  single  word,  avoid  all  the  complex 
differences  and  various  conditions  of  many  things,  each 
requiring  its  own  definition.  Bullion,  standard  coin,  token 
coin,  convertible  and  inconvertible  notes,  legal  tender  and 
not  legal  tender,  cheques  of  several  kinds,  mercantile  bills, 
exchequer  bills,  stock  certificates,  etc.,  are  all  things 
capable  of  being  received  in  payment  of  a  debt,  if  the 
debtor  is  willing  to  pay  and  the  creditor  to  receive  them ; 
but  they  are,  nevertheless,  different  kinds  of  things.  By 
calling"  some  money  and  some  not,  we  do  not  save  our- 
selves from  the  consideration  of  their  complex  legal  and 
economical  differences.  Bullion  is  evidently  not  coin,  but 
can  be  turned  into  it  at  little  or  no  cost,  and  will 


CBEDIT   DOCUMENTS.  249 

make  foreign  payments  almost  as  well  as  coin.  Token 
coins  are  not  standard  coins,  and  will  not  make  foreign 
payments,  but  are  legal  tender  for  small  sums,  and  may 
be  readily  exchanged  for  standard  coin  at  little  or  no  loss. 
Bank  of  England  notes  are  not  exactly  coin,  but  can  be 
readily  turned  into  coin  by  those  who  dwell  near  the 
Bank  of  England,  and  are  received  as  equivalent  to  coin 
by  other  persons.  Cheques  are  not  coin,  but  orders  to 
receive  it  on  demand,  and  are  valuable  in  proportion  to 
the  probability  that  the  sum  will  be  received.  Accepted 
bills  are  an  engagement  to  pay  coin  at  a  day  named ;  if 
we  overlook  the  possible  failure  of  the  acceptor  to  pay 
them,  they  are,  as  it  were,  deferred  money.  A  certificate 
of  consolidated  stock  entitles  the  holder  to  an  annuity, 
that  is,  to  quarterly  sums  of  money. 

We  get  back,  in  short,  to  that  with  which  we  started. 
Standard  legal  tender  coin  is  that  in  which  all  com- 
mercial transactions  and  documents  are  expressed,  but 
according  to  infinitely  various  circumstances,  the  receipt 
of  the  money  is  more  or  less  probable,  more  or  less 
deferred,  more  or  less  involved  in  legal  complexities,  and 
also  variable  in  amount,  as  interest  is  or  is  not  to  be 
received  in  addition.  All  other  commercial  property, 
mortgage  deeds,  preference  shares  and  bonds,  and  ordi- 
nary shares,  resolve  themselves  into  more  or  less  proba- 
bility of  receiving  coin  at  future  dates ;  and  thus  we  pass 
insensibly  from  the  golden  sovereign  in  hand  to  the  most 
flimsy  chance  of  receiving  gold  which  is  still  like  the  bird 
in  the  bush. 

The  word  cash  is  used  with  exactly  the  same  ambiguity 


250  MONEY. 

as  money.  Originally  cash  meant  that  which  was  encaisse, 
i.e.  put  into  the  chest  or  till.  Strictly  speaking,  it 
should  consist  of  actual  specie,  and  the  word  is  used  in 
Borne  English  banks  to  include  only  coin  of  the  realm. 
But  I  find  by  actual  inquiry  that  bank  cashiers  use  it 
with  every  shade  of  meaning.  Some  take  Bank  of 
England  notes  to  be  cash.  Good  cheques  upon  a  bank 
paid  into  that  bank  are  evidently 'as  good  as  cash. 
Others  go  so  far  as  to  include  cheques  upon  other  banks 
of  the  same  town,  and  even  country  bank-notes  are  some- 
times included  in  cash.  The  question  is  evidently  one  of 
degree,  and  cannot  be  settled  except  by  the  general 
adoption  among  cashiers  of  some  one  arbitrary  line  of 
definition. 

In  ordinary  life  we  use  a  great  many  words  with 
a  total  disregard  of  logical  precision.  Who  shall  decide, 
for  instance,  what  objects  are  to  be  included  under  the 
names  building  and  house  ?  Let  the  reader  attempt  to 
decide  which  of  the  following  objects  is  to  be  considered 
a  house,  and  why  ? — namely,  stables,  cow-houses,  con- 
servatories, sheds,  lighthouses,  tents,  caravans,  hulks, 
sentry-boxes,  ice-houses,  summer-houses,  and  parish 
pounds.  The  difficulty  is  exactly  analogous  to  that 
of  deciding  what  is  money  or  cash. 


CHAPTEE  XX. 

BOOK  CKEDIT  AND  THE  BANKING  SYSTEM. 

CONSIDERABLE  economy  of  the  precious  metals  arises, 
as  we  have  seen,  from  passing  about  pieces  of  paper 
representing  gold  coin,  instead  of  the  coin  itself.  But 
a  far  more  potent  source  of  economy  is  what  we  may  call 
the  Cheque  and  Clearing  System,  whereby  debts  are,  not 
so  much  paid,  as  balanced  off  against  each  other.  The 
germ  of  the  method  is  to  be  found  in  the  ordinary 
practice  of  look  credit.  If  two  firms  have  frequent 
transactions  with  each  other,  alternately  buying  and 
selling,  it  would  be  an  absurd  waste  of  money  to  settle 
each  debt  immediately  it  arose,  when,  in  a  few  days,  a 
corresponding  debt  might  arise  in  the  opposite  direction. 
Accordingly,  it  is  the  common  practice  for  firms  having 
reciprocal  transactions,  to  debit  and  credit  each  other  in 
their  books  with  the  debt  arising  out  of  each  transaction, 
and  only  to  make  a  cash  payment  when  the  balance 
happens  to  become  inconveniently  great.  An  insurance 
broker  is  one  who  acts  as  a  middleman  between  the 
owners  of  ships  and  the  underwriters  who  insure  them 
in  shares.  He  has  therefore  to  make  many  small  pay- 
ments to  underwriters,  for  the  premiums  on  policies, 
and  at  intervals  has  to  receive  back  the  indemnity  for  any 


252  MONEY. 

insured  vessel  which  has  been  lost.  It  is  the  common 
practice  to  avoid  cash  payments  ;  the  broker  credits  the 
underwriters  with  the  premiums  and  debits  him  with 
losses,  and  only  pays  or  receives  the  balance  when  large. 
To  represent  the  highly  complex  system  of  book 
credit  which  is  organized  by  the  bankers  of  a  large 
kingdom,  we  shall  have  to  employ  a  method  of  diagram- 
atic  notation.  I  will  therefore  remark  that  the  simplest 
case  or  type  of  book-credit  is  represented  by  the  formula 

P Q. 

Each  of  the  letters,  P  and  Q,  indicates  a  person  or  a 
firm,  and  the  line  indicates  the  existence  of  transactions 
between  them.  Only  in  special  cases,  however,  will  this 
direct  balancing  of  accounts  render  the  use  of  cash  or  of  a 
more  complex  system  unnecessary.  Generally  speaking, 
there  will  be  a  tendency  for  a  surplus  of  goods  to  pass 
in  one  direction,  so  that  money  must  pass  in  the  opposite 
direction.  The  manufacturer  sells  to  the  wholesale 
dealer,  the  latter  sells  to  the  retailer,  and  the  retailer 
to  the  consumer.  By  the  intervention  of  the  banker, 
however,  the  transactions  of  many  different  individuals, 
or  even  of  many  branches  of  trade,  are  brought  to  a  focus, 
and  a  large  proportion  of  payments  can  be  balanced  off 
against  each  other. 

Single  Bank  System. 

To  obtain  a  clear  notion  of  the  way  in  which  bankers 
help  us  to  avoid  the  use  of  money  as  the  medium  of 
exchange,  we  must  follow  up  the  rise  of  the  system  from 


BOOK   CREDIT    AND    THE    BANKING    SYSTEM.  253 

the  simplest  case  to  the  complete  development  of  the 
complex  organization  now  existing  in  the  United  King- 
dom. Let  us  imagine,  in  the  first  place,  that  there  is 
an  isolated  town  having  no  appreciable  dealings  with 
other  parts  of  the  world,  and  possessing  only  a  single 
bank,  in  which  each  inhabitant  has  deposited  all  his 
money.  If  any  person  a,  then,  wishes  to  make  a  pay- 
ment to  b,  he  need  not  go  to  his  banker,  draw  out  coin, 
and  carry  it  to  b,  but  may  hand  to  &  a  cheque  requiring 
the  banker  to  pay  the  coins  to  b,  if  needed.  But  if  b 
makes  payments  in  the  same  way,  he  will  not  need  to 
draw  out  any  coin.  It  would  be  a  mere  formality  for 
b  to  receive  the  coin  due  from  a,  and  then  pay  it  back 
over  the  counter  to  the  credit  of  his  account  with  the 
same  banker.  The  payment  is  made  by  merely  writing 
the  sum  of  money  to  the  debit  of  a's  account,  and  to  the 
credit  of  &'s  account.  If  b  wishes  to  make  another  pay- 
ment to  c,  a  similar  record  in  the  banker's  ledger  will 
accomplish  the  business.  However  many  other  traders, 
d,  e,  etc.,  there  may  be,  their  mutual  transactions  may 
be  settled  in  the  same  way,  without  their  seeing  a 
single  coin.  We  may  represent  this  elementary  banking 
organization  by  the  following  diagram, 


in  which  it  is  obvious  that  P  represents  the  single 
banker,  and  a,  b,  c,  dy  e,  his  customers.     The  deposit 


254  MONEY. 

banks  of  Amsterdam  and  Hamburg  form  perfect  illustra- 
tions of  this  arrangement. 

So  long  as  we  regard  only  the  internal  transactions 
of  a  town,  then,  a  stationary  amount  of  coin,  lying 
untouched  in  the  bank,  will  allow  the  whole  to  be 
accomplished.  If  the  traders  never  require  to  make 
payments  to  a  distance  the  metallic  money  might  be 
dispensed  with  altogether.  But  since  any  of  the  cus- 
tomers a,  b,  c,  etc.,  may  want  his  money,  the  banker 
ought  to  keep  at  least  as  much  as  will  meet  possible 
demands. 

System  of  Two  Banks. 

As  a  second  case,  let  us  suppose  that  there  is  a  town 
which  is  able  to  support  two  banks.  Some  of  the 
inhabitants  keep  their  money  in  one  bank  and  some 
in  the  other,  but  all  whom  it  is  requisite  to  consider 
have  an  account  with  one  or  the  other.  In  the  diagram, 


\\  1 7    \  // 


Q 


let  P  and  Q  be  the  two  bankers,  a,  &,  <?,  d,  being  cus- 
tomers of  P,  and  q,  r,  s,  t,  customers  of  Q.  Now,  the 
mutual  transactions  of  a,  &,  c,  d,  will,  as  before,  be 
balanced  off  in  the  books  of  P,  and  similarly  with  the 
customers  of  Q.  But  if  a  has  to  make  a  payment  to  q, 


BOOK    CREDIT    AND    THE    BANKING    SYSTEM.  255 

the  operation  becomes  somewhat  more  complex.^  He 
draws  a  cheque  upon  P,  and  hands  it  to  q,  who  may, 
of  course,  demand  the  coin  from  P.  Not  wanting  coin, 
he  carries  the  cheque  to  his  own  banker,  Q,  and  pays 
it  in  to  his  account  in  place  of  coin.  It  is  the  banker, 
Q,  who  will  now  have  to  present  the  cheque  upon  P,  and 
it  might  seem  as  if  the  use  of  coin  would  be  ultimately 
required.  There  will  be  other  persons,  however,  making 
payments  in  the  town  in  the  same  manner,  and  the 
probability  is  very  great  that  some  of  these  will  result 
in  giving  P  cheques  upon  Q,  and  some  in  giving  Q 
cheques  upon  P.  The  two  bankers,  then,  will  be  in  the 
position  of  the  two  traders  before,  described  (p.*  251), 
who  have  a  running  account.  At  the  worst  the  payment 
to  be  made  in  coin  will  be  only  the  balance  of  what  is 
due  in  opposite  directions ;  but  as  this  balance  will 
probably  tend  in  one  direction  one  day,  and  in  the 
opposite  direction  the  next  day,  the  balance  need  only 
be  paid  when  it  assumes  inconvenient  proportions. 

Complex  Bank  System. 

A  large  commercial  town  usually  possesses  several  or 
many  banks,  each  with  its  distinct  body  of  customers. 
The  mutual  transactions  of  each  body  will,  as  before,  be 
balanced  off  in  the  books  of  their  common  bank,  but  the 
larger  part  of  the  transactions  will  now  be  cross  ones, 
resulting  in  a  claim  by  one  banker  upon  another.  The 
probability  is  very  great,  indeed,  that  each  banker  will 
have  to  receive,  as  well  as  to  pay,  each  day;  but  it 


256  MONEY. 

does  not  follow  that  he  will  pay  tg  the  same  as  those 
who  are  going  to  pay  to  him.  The  complexity  of  rela- 
tions becomes  considerable  ;  thus  among  fourteen  banks 
there  are  14*13  or  91  different  pairs  which  may  have 
mutual  claims,  and  among  fifty  banks  there  would  be 
no  less  than  1225  pairs.  The  result  is,  that  P  might 
happen  to  have  a  considerable  balance  to  pay  to  Q,  and 
yet  might  be  going  to  receive  about  the  same  sum  from 
E  or  S.  The  actual  carrying  about  of  coin  under  such 
circumstances  would  be  absurd,  because  a  manifest 
extension  of  the  book-credit  system  at  once  meets  the 
difficulty.  The  several  banks  need  only  agree  to 
appoint,  as  it  were,,  a  bankers'  lank,  to  hold  a  portion  of 
the  cash  of  each  bank,  and  then  the  mutual  indebted- 
ness may  be  balanced  off  just  as  when  a  bank  acts  for 
individuals.  In  the  figure  we  see  four  banks,  P,  Q,  E,  S, 
each  with  its  own  body  of  customers,  but  brought  into 
connection  with  each  other  by  the  bankers'  bank,  X. 


e      f     g         I     m    n        p     q     r 


P  need  not  now  send  a  clerk  to  present  bundles  of 
cheques  upon  Q,  E,  and  S,  but  can  pay  them  into  the 
central  bank,  X,  where  after  being  placed  to  the  credit  of 
P  and  sorted  out,  they  will  be  joined  to  similar  parcels 


BOOK   CEEDIT   AND    THE   BANKING    SYSTEM.  257 

of  cheques  received  from  Q,  E,  S,  and  finally  presented 
at  the  banks  upon  which  they  are  drawn.  Thus  all  the 
payments  made  by  cheques  will  be  effected  without  the 
use  of  coin,  just  as  if  there  were  only  a  single  bank  in 
the  town.  What  each  bank  has  to  pay  each  day  will 
usually  be  balanced  pretty  closely  by  what  it  has  to 
receive.  Such  balance  as  remains  will  be  paid  by  a 
transfer  in  the  books  of  X,  the  bankers'  bank. 

It  is  not  precisely  true  that  there  is  in  any  English 
town  a  bankers'  bank,  which  thus  arranges  the  payments 
between  banks.  The  accountants'  part  of  the  work  is 
carried  out  by  an  institution  called  the  Clearing  House, 
managed  by  a  committee  of  bankers,  and  the  Bank  of 
England  is  employed  to  hold  the  deposits  of  the  bankers, 
and  make  transfers  which  close  the  transactions  of  each 
day.  The  organization  of  the  Clearing  House  will  be 
described  in  the  next  chapter. 

Branch  Bank  System. 

It  is  impossible  to  avoid  perceiving  that  the  organiza- 
tion of  the  English  bank  system,  is  undergoing  a  com- 
plete transformation,  and  is  approximating  to  that  which 
has  existed  for  a  century  or  more  in  Scotland.  Instead 
of  a  great  number  of  small,  weak,  disconnected  banks, 
there  is  arising,  by  amalgamation  and  extinction  of  the 
weaker  ones,  a  moderate  number  of  important  banks, 
each  possessing  numerous  branches.  The  Scotch  banks 
have  long  had  many  branches,  and  at  present  each  of 
the  eleven  great  banks  has  on  the  average  78  branches, 


258  MONEY. 

the  lowest  number  being  19,  and  the  highest  125. 
Already  a  few  of  the  English  banks  have  equally  exten- 
sive ramifications.  Thus  the  London  and  County  Bank, 
and  the  National  Provincial  Bank,  which  have  especially 
developed  the  branch  system,  have  respectively  148  and 
137  branches;  the  Manchester  and  Liverpool  District 
Bank  has  50  branches  and  sub-branches.  The  Irish 
banks  also  adopt  the  same  system,  and  the  National 
Bank  of  Ireland  has  about  114  branches  and  sub- 
branches.  It  is  interesting  to  observe  that  in  Australia, 
too,  the  banking  system  has  taken  a  similar  form,  and 
a  comparatively  small  number  of  strong  banks,  such  as 
the  Bank  of  New  South  "Wales,  or  the  Bank  of  New 
Zealand,  leave  no  rising  village  without  its  branch. 

Now,  the  close  connection  which  exists  between  the 
head  office  and  each  of  the  branches  of  an  extensive 
bank  leads  to  a  great  clearing  off  of  claims.  The 
diagram  on  p.  256  again  serves  to  represent  this  rela- 
tion, X  being  the  head  office,  P,  Q,  E,  S,  branch 
banks,  and  a,  6,  c,  etc.,  customers.  If  a  pay  m  with  a 
cheque  on  P,  the  cheque  will  be  paid  into  E,  credited  to 
m,  forwarded  by  post  direct  to  P,  and  debited  to  a.  The 
head  office,  being  informed  of  this  transaction  in  the 
usual  daily  statement,  will  close  the  business  by  trans- 
ferring the  sum  from  the  account  of  P  to  that  of  E. 
Much  accountants'  work  seems  to  arise,  but  it  is  work  of 
mere  routine  which  costs  little.  C-ish  remittances  are 
seldom  necessary,  because  each  branch  settles  accounts 
only  with  the  head  office,  so  that  many  sums  will  be 
credited  and  debited  during  each  week,  and  the-  balance 


BOOK    CREDIT    AND    THE    BANKING    SYSTEM.  259 

will  usually  be  small.     The  head  office,  in  fact,  acts  in 
every  way  like  a  clearing  house,  or  bankers'  bank. 

The  question  naturally  arises,  indeed,  how  will  the 
branches  of  one  bank  transact  business  with  those  of 
another  bank  ?  The  solution,  however,  is  simple ;  for 
unless  the  branches  happen  to  be  in  the  same  town,  or  for 
other  reason,  in  close  relation  with  each  other,  they  will 
communicate  through  their  head  offices.  A  cheque  upon 
any  branch  of  the  London  and  County  Bank  received 
by  a  branch  of  the  National  Provincial  Bank,  will  be 
presented  through  the  head  office  of  the  latter  at  the 
Clearing  House  upon  the  head  office  of  the  former. 

Bank  Agency  System. 

"  Another  important  feature  of  the  banking  system  is 
the  extensive  organization  of  agencies.  A  large  bank 
has  various  business  to  be  transacted  in  each  of  the 
principal  commercial  towns  of  the  kingdom,  and  if  it 
has  no  branches  in  these  towns  employs  a  banker  in 
each  town  to  act  as  its  agent.  This  agent-bank  collects 
cheques,  bills,  notes,  etc.,  payable  in  the  district,  cashes 
drafts  drawn  against  them,  retires  bills  according  to 
instructions,  and  does  almost  all  that  a  branch  bank 
would  do,  the  main  difference  being  that  the  remunera- 
tion for  this  work  consists  of  a  commission.  Each 
agent-bank  has  a  running  account  with  its  principal, 
so  that  to  a  certain  extent  each  important  bank  and  its 
agencies  form  a  clearing  system  analogous  to  that  of 
a  head  bank  and  its  branches. 


260  MONEY. 

London  Agency  System. 

By  insensible  degrees  there  has  grown  up  in  England 
an  all-comprehensive  and  most  perfect  system  of  rela- 
tions between  the  provincial  and  London  city  banks. 
Every  banker  in  the  United  Kingdom,  without,  I  believe, 
any  exception,  employs  one  or  other  of  the  great  London 
city  banks  to  act  as  agent.  There  are  twenty-six  city 
clearing  banks  which  thus  undertake  agencies,  and  on 
an  average,  each  of  these  banks  represents  at  least 
twelve  country  banks ;  but  the  number  varies  very 
much,  and  some  country  banks  have  two  London  agent- 
banks. 

This  agency  system  leads  at  once  to  a  clearing  of 
transactions,  because,  if  any  two  country  banks  ha^ve 
the  same  London  agent,  all  their  mutual  adjustments  of 
accounts  can  be  made  by  transfers  in  the  books  of  the 
agent.  The  diagram  on  p.  256  applies  for  a  third  time, 
and  X  represents  the  city  agent,  having  running  accounts 
with  P,  Q,  R,  S,  the  country  banks.  The  whole  of  the 
customers  of  all  the  banks,  having  the  same  London 
agent,  are  thus  brought  into  close  relation,  though  they 
may  live  in  the  most  distant  parts  of  the  country.  Each 
of  the  city  banks  may  be  regarded  as  a  bankers'  bank 
and  a  clearing  house  on  a  small  scale. 

Country  Clearing  System. 

Only  one  further  step  is  required  to  complete  the 
system  of  connections  between  each  bank  in  the  kingdom 


BOOK   CREDIT   AND    THE    BANKING    SYSTEM.  261 

and  all  other  banks.  Every  country  bank,  as  we  have 
seen,  has  a  running  account  with  some  city  bank,  and 
all  the  city  banks  daily  settle  transactions  with  each 
other  through  the  Clearing  House.  It  follows  that  a 
payment  from  any  part  of  the  country  to  any  other  part 
can  be  accomplished  through  London.  In  the  follow- 
ing diagram,  let  P,  Q,  E  be  country  banks  having  the 

abcefglvnn         rstuvwayz 

\\/   \\/   \\/ 


C.H 


London  agent,  X,  and  U,  V,  W,  other  country  banks 
having  the  London  agent,  Y.  If  a,  a  customer  of  P, 
wishes  to  pay  r,  a  customer  of  U,  he  transmits  by  post 
a  cheque  upon  his  banker,  P.  The  receiver,  r,  pays  it 
into  his  account  with  U,  who  having  no  direct  com- 
munication with  P,  forwards  it  to  Y,  who  presents  it 
through  the  Clearing  House  on  X,  who  debits  it  to  P, 
and  forwards  it  by  the  next  post.  Nothing  can  exceed 
the  simplicity  and  perfection  of  this  arrangement. 

It  will  be  readily  seen,  too,  that  sums  of  money 
passing  between  London  banks,  or  rather  cleared  off  in 
the  Lombard  Street  Clearing  House,  will  frequently  be 
the  balances  of  extensive  running  accounts  between 
country  banks  and  their  agents  and  correspondents. 


262  MONEY, 

So  long  as  the  balance  of  accounts  between  any  two 
banks  does  not  assume  large  proportions,  it  need  not 
be  paid  in  cash  at  all,  except  for  special  reasons.  When 
a  balance  has  to  be  paid,  and  the  banks  happen  to  have 
the  same  London  agent,  it  is  only  requisite  for  the 
debtor  bank  to  direct  their  London  agent  to.  transfer 
so  much  money  to  the  credit  of  the  other  country  bank. 
If  they  have  different  London  agents,  and  P,  in  the  last 
diagram,  desires  to  pay  a  balance  to  U,  it  is  done  by 
directing  X  to  credit  Y,  the  agent  of  U.  The  credit  note 
effecting  this  payment  passes  through  the  Clearing  House 
amid  a  mass  of  other  documents  representing  payments 
in  one  direction  or  the  other,  and  will,  in  general,  become 
an  insignificant  item  in  the  general  clearing.  If  it  can 
be  said  to  be  paid  in  cash  at  all,  it  is  in  the  form  of  a 
final  transfer  in  the  books  of  the  Bank  of  England,  as  we 
shall  see.  Great  as  are  the  transactions  daily  settled 
in  the  London  Clearing  House,  they  are  after  all  only 
those  which  have  not  been  previously  cleared  off  by  any 
more  direct  communication,  and  they  often  represent 
the  balances  of  multitudinous  transactions  which  never 
pass  through  London  at  all. 


CHAPTEE  XXI. 

THE  CLEAKING-HOUSE  SYSTEM. 

BY  means  of  the  London  agency  system,  the  banking 
transactions  of  the  country  are,  as  we  have  seen, 
brought  to  a  focus  in  the  city  of  London.  The  settle- 
ment of  the  reciprocal  claims  of  the  twenty-six  principal 
city  banks  is  therefore  a  business  of  the  utmost  magni- 
tude and  importance,  representing  as  it  does  the  com- 
pletion of  the  business  of  no  small  part  of  the  world. 
In  a  room  of  moderate  dimensions,  entered  from  a 
narrow  passage  running  from  the  post-office  in  King 
William  Street  across  to  Lombard  Street,  debts  to  the 
average  amount  of  nearly  twenty  millions  sterling  per 
day  are  liquidated  without  the  use  of  a  single  coin  or 
bank-note.  In  the  classic  financial  neighbourhood  of 
Lombard  Street,  and  even  in  this  very  chamber,  the 
system  of  paper  commerce  has  been  brought  nearly  to 
perfection.  The  early  history  of  the  London  Clearing 
House  is  buried  in  obscurity,  and  it  is  much  to  be 
desired  that  those  who  are  acquainted  with  the  principal 
incidents  in  its  progress  should  put  them  on  record 
before  it  is  too  late. 


264  MONEY. 

The  Clearing  House  appears  to  have  been  first 
created  just  a  century  ago.  About  the  year  1775  a 
few  of  the  city  bankers  hired  a  room  where  their  clerks 
could  meet  to  exchange  notes  and  bills,  and  settle  their 
mutual  debts.  The  society  was  of  the  nature  of  a 
strictly  private  club,  the  public  knowing  nothing  about 
it,  and  the  transactions  being  conducted  in  perfect 
secrecy.  Mr.  Gilbart  tells  us  that,  even  in  this  form,  it 
was  regarded  as  a  questionable  innovation,  and  some 
of  the  principal  bankers  refused  to  have  anything  to  do 
with  it.  By  degrees,  however,  the  convenience  of  the 
arrangement  made  itself  apparent,  more  bankers  were 
admitted  to  the  society,  and  a  distinct  committee  and 
set  of  rules  were  formed  for  its  management.  Although 
it  remains  to  the  present  day  a  private  and  voluntary 
association,  unchartered,  and  in  fact  unknown  to  the 
law,  the  Clearing  House  has  steadily  grown  in  import- 
ance and  in  the  publicity  of  its  proceedings. 

Several  important  extensions  of  the  clearing  work 
have  been  made  in  the  last  twenty-five  years.  After  the 
rise  of  the  London  Joint  Stock  Banks,  subsequent  to 
1833,  they  were  for  along  time  refused  admittance  to  the 
Clearing  House ;  but  in  June,  1854,  they  were  at  last 
allowed  to  join  the  association.  The  Bank  of  England 
long  remained  entirely  outside  of  the  confederation,  but 
more  recently  it  has  become  a  member,  so  far  as  regards 
the  presentation  of  claims  upon  other  banks.  The  West 
End  banks  of  London  are  still  beyond  its  sphere,  partly, 
perhaps,  because  their  distance  stands  in  the  way  of  the 
working  of  the  system.  They  are  thus  in  the  position 


THE    CLEARING-HOUSE    SYSTEM.  265 

of  provincial  banks,  and  can  clear  through  city  agents 
like  provincial  banks. 

Before  the  year  1858  the  business  of  the  Clearing 
House  was  restricted  to  the  exchange  of  cheques  and 
bills  actually  drawn  on  the  clearing  bankers.  Country 
bankers  receiving  cheques  drawn  upon  other  distant 
country  banks  were  in  the  habit  of  remitting  them 
direct  by  post,  the  paying  bank  effecting  the  payment 
by  directing  their  London  banker  to  pay  the  amount  to 
the  London  agent  of  the  receiving  bank.  In  the  year 
1858,  at  the  suggestion  of  Mr.  William  Gillett,  but 
chiefly  by  the  exertions  of  Sir  John  Lubbock,  the 
country  clearing  system  was  organized.  The  country 
banker,  instead  of  posting  many  cheques  every  day  to 
all  parts  of  the  kingdom,  sends  them  in  a  single  parcel 
to  his  London  agent,  to  be  presented  through  the  Clear- 
ing House  on  the  London  agents  of  the  paying  banks. 
This  exchange  is  made,  as  we  shall  see,  at  different 
hours  of  the  day,  but  the  results  are  summed  up  in  the 
general  balance  of  the  day's  transactions. 

Transaction  of  Business  at  the  London  Clearing  House. 

There  are  three  clearings  daily  at  the  Lombard 
Street  House.  The  morning  clearing  opens  on  ordi- 
nary days  at  10.30 ;  drafts  are  received  not  later  than 
11,  and  the  work  must  be  closed  at  noon.  The  country 
clearing  then  begins,  drafts  being  received  until  12.30, 
and  the  clearing  closed  at  2.15.  The  heaviest  clearing, 
however,  is  that  of  the  afternoon,  which  begins  at  2.30. 


266  MONEY. 

The  bustle  and  turmoil  of  the  work  grow  to  a  climax  at 
four  o'clock,  the  runners  rushing  in  with  the  last  parcels 
of  drafts,  up  to  the  moment  when  the  door  is  finally 
closed.  On  the  fourth  day  of  each  month,  when  the 
heaviest  work  occurs,  the  hours  are  extended,  the  House 
opening  at  nine  o'clock. 

The  Clearing  House  is  a  plain  oblong  room,  with  rows 
of  desks  in  compartments  round  three  sides,  and  down 
the  middle.  A  small  office  for  the  two  superintendents 
stands  at  one  end.  Each  bank  sends  as  many  clerks  to 
the  House  as  may  be  requisite  for  the  rapid  completion 
of  the  work,  and  some  banks  have  as  many  as  six  clerks. 
The  cheques  and  bills  to  be  presented  by  any  one 
clearing  banker,  say  the  Alliance  Bank,  upon  any  other 
clearing  banker,  are  entered  at  home  in  the  "  Out-clearing 
book,"  and  are  then  sorted  into  twenty-five  parcels,  one 
of  which  is  to  be  presented  on  each  of  the  other  clearing 
banks.  On  reaching  the  Clearing  House,  these  parcels 
are  distributed  round  the  room  to  the  desks  of  the  clerks 
representing  the  several  paying  banks,  who  immediately 
begin  to  enter  them  in  the  "  In-clearing  books "  in 
columns  bearing  at  the  head  the  name  of  the  presenting 
bank.  After  being  entered,  the  drafts  are,  as  soon  as 
possible,  forwarded  to  the  banking  house  for  examina- 
tion and  entry  in  the  bank  books.  Any  cheques  or 
bills  refused  payment  are  called  "returns,"  and  can 
generally  be  sent  back  to  the  Clearing  House  the  same 
day,  and  entered  again  as  a  reverse  claim  by  the  bank 
dishonouring  them  on  the  banks  which  presented  them. 
At  the  close  of  the  day  the  clerks  of  the  Alliance 


THE    CLEAKING-HOUSE    SYSTEM.  267 

are  able  to  add  up  the  whole  of  the  claims  which  have 
been  made  upon  them  by  the  other  twenty-five  banks,  and 
they  learn  from  the  out -clearing  book  the  amount  of  the 
claims  which  the  Alliance  Bank  is  making  on  other 
banks.  The  difference  is  the  balance  which  the  Alliance 
Bank  has  either  to  pay  or  receive  as  the  case  may  be. 
These  balances  being  communicated  to  the  superinten- 
dents of  the  House  are  by  them  inserted  in  a  kind  of 
balance  sheet.  When  finally  added  up,  the  debtor  and 
creditor  sides  of  the  sheet  should  exactly  balance, 
because  every  penny  to  be  received  by  one  bank  must  be 
paid  by  another. 

In  former  years  the  balance  due  by  or  to  each  bank 
was  paid  in  bank-notes,  and  in  tlie  year  1839,  average 
daily  transactions  to  the  amount  of  about  three  millions 
were  cleared  by  the  use  of  ^£200,000  in  bank-notes,  and 
;£20  in  coin,  or  about  one-fifteenth  part  of  the  debts  liquid- 
ated. More  recently  a  suggestion  of  the  late  Charles 
Babbage  was  carried  into  effect,  and  the  balances  were 
paid  by  drafts  upon  the  Bank  of  England,  in  which  bank 
each  city  banker  deposits  a  large  part  of  his  spare  cash. 
One  ingenious  minor  arrangement  in  the  London 
Clearing  House  is  the  division  of  the  whole  list  of  twenty- 
six  bankers  into  three  groups,  in  such  a  way  that  one 
of  the  clearing  clerks  of  the  Alliance  Bank  corresponds 
with  one  group  of  the  other  banks,  a  second  clerk  with 
the  second  group,  and  so  on.  Thus  when  a  comparison 
or  correction  of  accounts  is  made  between  any  two 
banks,  it  is  known  precisely  which  clerk  must  answei 
to  the  questions  called  across  the  room. 


268  MONEY. 

Although  the  rapid  and  effective  way  in  which  the 
settlement  is  carried  out  in  the  London  Clearing  House 
must  always  excite  surprise,  it  is  quite  open  to  question 
whether  improvements  are  not  needed.  The  room  did 
not  seem  to  me  large  enough  for  the  convenient  and 
wholesome  transaction  of  such  vast  and  increasing 
work.  Although  some  banks  employ  as  many  as  six 
clerks,  the  pressure  is  very  great  at  times.  The  facility 
which  these  clerks  acquire  by  practice  in  making  and 
adding  up  entries  is  very  great,  but  the  intense  head 
work  performed  against  time,  in  an  atmosphere  far  from 
pure,  and  in  the  midst  of  bustle  and  noise  arising  from 
the  corrections  shouted  from  one  clerk  to  another  across 
the  room,  must  be  exceedingly  trying.  Brain  disease  is 
occasionally  the  consequence. 

The  question  must  arise,  too,  whether  the  privilege 
of  clearing  is  to  be  for  ever  restricted  to  twenty-six 
principal  city  banks,  when  there  are  certainly  many 
other  banks  existing  or  being  founded  which  need 
the  convenience  of  access  to  the  House.  In  New  York 
the  clearing  circle,  as  we  shall  see,  is  much  wider.  At 
present  the  minor  London  banks  are  forced  to  employ 
the  clearing  bankers  as  agents,  or  to  forego  the  advan- 
tages of  the  Clearing  House  altogether.  It  is  hardly 
just  or  possible  that  a  narrow  monopoly  of  the  sort 
should  be  maintained  for  ever. 


THE    CLEARING-HOUSE    SYSTEM.  269 


Manchester  Clearing  House. 

Though  the  London  Clearing  House  is  entirely  the 
birthplace  of  the  system,  and  the  spot  where  the  work 
has  been  organized  on  the  largest  scale,  it  does  not 
follow  that  it  is  in  every  respect  the  most  suitable 
for  imitation  in  commercial  towns  of  less  magnitude. 
At  least  two  English  provincial  towns,  Manchester 
and  Newcastle,  have  established  local  clearing  houses. 
The  bankers  of  Liverpool,  also,  I  am  told,  have  recently 
arranged  a  private  system  of  clearing  among  themselves ; 
and  it  is  possible  that  the  bankers  of  other  towns  may 
have  taken  a  similar  step  without  the  fact  becoming 
generally  known.  Through  the  kindness  of  some  mem- 
bers of  the  committee,  I  have  received  full  information 
as  to  the  working  of  the  Manchester  Clearing  House. 
The  business  seems  to  have  been  arranged,  chiefly,  I 
believe,  by  Mr.  E.  W.  Nix,  with  great  success,  and  it 
may  be  useful  to  describe  the  arrangements  in  detail, 
as  they  would  be  very  suitable  for  adoption  in  many 
English,  foreign,  or  colonial  towns,  which  will  doubt- 
less before  long  establish  clearing  houses. 

In  the  Manchester  Clearing  House  the  work  is  per- 
formed entirely  upon  loose  forms,  and  not  in  account- 
books,  as  in  London.  Though  these  forms  may  seein 
rather  numerous  and  elaborate,  they  greatly  assist  in  the 
accurate  and  orderly  settlement  of  the  balance.  The 
clearing  clerk,  before  leaving  his  bank,  sorts  out  the 
drafts,  which  he  has  to  deliver,  into  thirteen  parcels,  one 


270 


MONEY. 


for  each  of  the  thirteen  other  banks,  and  then  fill's  up 
thirteen  lists,  one  for  each  parcel,  in  the  Form  No.  1 
shown  below,  each  cheque  being  represented  only  by  the 
amount  of  money  expressed  in  it.  A  copy  of  the  list  is 
entered  in  one  of  the  books  of  the  bank  provided  for  the 
purpose. 


Form  No.  1. 


MANCHESTEE    BANK   CLEARING. 


Mem.  of  Cheques  delivered  by 


to 


..Clearing. 


187 


Adding  up  each  such  list,  he  inserts  the  totals  in  one 
of  the  left-hand  columns  of  the  Form  No.  2.  He  thus 
obtains  a  complete  abstract  of  all  the  claims  he  holds 
upon  other  banks,  and  adding  up  the  columns  ascertains 
the  aggregate  "  Out- clearing," 


THE    CLEARING-HOUSE    SYSTEM. 


271 


Form  No.  2. 


MANCHESTER  BANK  CLEARING, 


1S7 


OUT. 

IN. 

First 
Cleaving. 

Second 
Clearing. 

First 
Clearing. 

Second 
Clearing. 

Adelphi 

Bank 

Consolidated 

County 

Cunliffe's 

District 

Heywood 

Joint  Stock 

King  Street 

Lancashire 

National  Pro- 
vincial 

Salford 

Sewell 
Union 

Total 
Balance 

- 



— 

- 

1 



- 

On  reaching  the   Clearing  House,   the  clerk  walks 
round  the  room  and  lays  on  the  desk  belonging  to  each 
18 


272  MONEY. 

other  bank  the  parcel  of  cheques  and  the  corresponding 
list  already  described.  In  the  course  of  a  little  time 
thirteen  similar  parcels  and  lists  will  be  laid  on  his  own 
desk  by  the  clerks  of  other  banks,  and  as  they  come  in 
he  compares  the  list  with  the  cheques,  verifies  the 
addition,  and  if  all  be  correct,  enters  the  amount  in  one 
of  the  right-hand  columns  of  the  second  form,  against 
the  name  of  the  bank  presenting  the  drafts.  These 
parcels  are  called  the  "In-clearing,"  and  represent  all 
the  claims  of  other  banks  upon  the  one  in  question,  so 
that  when  all  the  thirteen  amounts  are  entered,  and  the 
columns  added  up,  the  clerk  learns  the  aggregate  which 
his  bank  will  have  to  pay. 

At  Manchester  two  clearings  are  held  each  day. 
The  first  at  11.15  a.m.  is  a  preliminary  one  only,  and 
no  payment  of  balances  is  made.  As  soon  as  the 
columns  for  the  first  clearing  are  filled  up,  the  clerk 
returns  to  his  bank  with  the  in-clearing  parcel  of 
cheques  and  drafts  presented  upon  the  bank.  These 
documents  are  immediately  examined  by  the  proper 
officials  in  order  to  detect  any  which  may  be  irregular, 
fraudulent,  or,  for  want  of  funds,  or  other  reasons,  must 
be  dishonoured.  At  the  Clearing  House  the  clerk  has 
already  made  a  first  rough  inspection,  and  returned  any 
documents  which  were  obviously  irregular,  but  no  draft 
is  considered  to  be  finally  accepted  until  one  hour  after 
the  clearing  is  over.  The  returned  drafts  are  com- 
paratively few,  and,  as  soon  as  detected,  are  forwarded 
direct  to  the  bank  presenting  them. 

The  second  clearing  takes  place  at  2.15  p.m.  and  is 


THE    CLEARING-HOUSE    SYSTEM.  273 

conducted  just  as  in  the  morning.  The  second  columns 
of  the  out-  and  in-clearing,  in  Form  2,  having  been  filled 
and  summed  up,  the  totals  of  the  first  columns  are 
added  in,  and  the  clerk  learns  the  sum  that  has  to  be 
paid,  and  at  the  same  time  to  be  received,  by  his  bank. 
The  difference  is  the  balance  which  he  has  either  to 
receive  or  pay.  These  totals  anql  the  balance  he  copies 
into  the  following  brief  form,  No.  3,  which  he  hands  to 
the  inspector  of  the  Clearing  House. 

Form  No.  3. 

CLEARING   RETURNS. 


Messrs. 


Out-Clearing  £ 
In-Clearing    £  : 


Balance 


187 


The  inspector  now  proceeds  to  verify  the  balances  by 
inserting  the  amounts  in  Form  No.  7,  given  on  the  next 
page,  in  an  abbreviated  form,  only  four  of  the  names  of 
the  banks  being  inserted,  to  save  space.  In  these  forms 
the  names  of  the  banks  are  given  in  the  briefest  manner, 
and  the  Branch  Bank  of  England  is  called  simply 
"Bank." 


274 

Form  Jfo.  1. 
Dr. 


MONEY. 


CLEARING   HOUSE. 


Or. 


Adelphi 

Bank 

Consolidated 

County 

£ 

£ 

It  is  evident  that  the  total  which  some  of  the  banks 
have. to  receive  on  balance  must  equal  what  the  others 
have  to  pay,  because  every  cheque  has  been  added  in 
twice,  once  in  favour  of,  and  once  against,  some  bank. 
If  the  debtor  and  creditor  columns  of  the  seventh  form, 
being  added  up,  fail  to  balance,  some  error  of  account 
must  have  been  committed,  and  all  the  work  is  sub- 
mitted to  careful  re-examination  until  the  error  is 
detected.  When  all  is  correct,  it  remains  only  to  effect 
the  payments,  which  is  done  by  means  of  credit  and  debit 
notes,  directing  transfers  in  the  books  of  the  Branch 
Bank  of  England,  to  or  from  the  accounts  of  the  clearing 
bankers.  The  payments  are  made,  indeed,  to  and  from 
the  Clearing  House,  as  a  kind  of  fictitious  entity ;  but 
as  its  payments  and  receipts  each  day  exactly  balance, 
the  Clearing  House  requires  no  separate  ledger  account, 
except  for  small  current  expenses,  or  inconsiderable 
errors. 


THE  CLEARING-HOUSE  SYSTEM. 


275 


To  effect  the  transfer  the  clerk  of  each  paying  bank 
fills  up  the  double  form,  No.  4,  as  follows  : — 


%rm  Xo.  4. 


SETTLEMENT  AT  THE  CLEARING  HOUSE. 


Manchester, 


181 


To  the  Cashiers  of  the  BANK  OF  ENGLAND, 

fit,  ^leased  to  TRANSFER  from  our  Account 


the  sum 


and  place  it  to  the  Credit  of  the  Account  of  the 
Clearing  Rankers,  and  allow  it  to  be  drawn  for  by 
any  of  them  \ivith  the  knowledge  of  the  Inspector, 
signified  by  hvt  countersigning  the  Drafts). 


SETTLEMENT  AT  THE  CLEARING  HOUSE. 
BANK  OF  ENGLAND, 

Manchester, 187 

A  TRANSFEE/or  the  sum  of 


has  this  evening  been  made  at  the  Bank,  from  the 

Account  of  Messrs. _ 

to  the  Account  of  the  Clearing  Bankers. 

For  the  Bank  of  England, 


Tne  coupon  on  the  left-hand  side  is  a  draft  to  be 
signed  by  the  clerk,  if  he  has  authority  for  the  purpose, 
or  else  to  be  carried  by  him.  to  his  principals  to  be 
signed,  and  then  paid  into  the  Bank  of  England.  It 
directs  the  cashier  to  credit  the  Clearing  House  with  the 
balance,  and  debit  the  sum  to  the  paying  bank  in  ques- 
tion. The  authorized  official  of  the  Bank  of  England 
signs  the  corresponding  form  on  the  right  hand,  when 
the  payment  is  made,  as  a  receipt  for  the  sum  on  behalf 
of  the  Clearing  House. 


276 


MONEY. 


When,  on  the  other  hand,  the  balance  is  in  favour  of 
a  bank,  Form  No.  5,  printed  on  green  paper  for  the  sake 
of  easy  discrimination,  comes  into  use.  It  sufficiently 
explains  itself. 


Form  JVb.  5. 
SETTLEMENT  AT  THE  CLEARING  HOUSE. 

Manchester, 187 

To  the  Cashiers  of  the  BANK  OF  ENGLAND, 

Be  pleased  to  CREDIT  our  Account  the  sum 

of 

out  of  the  money  at  the  Credit  of  the  Account  of  tite 
Clearing  Bankers. 


SETTLEMENT  AT  THE  CLEARING  HOUSE. 
BANK  OF  ENGLAND, 

Manchester, 187 


The  Account  of  Messrs. 


has  this  evening   been  CREDITED  with   the  Sum 


out  of  the  money  at  the  Credit  of  Hie  Account  of  tht 
Clearing  Bankers. 

For  the  Bank  of  England. 


There  remains  then  only  the  question  of  the  returned 
cheques.  Even  these  do  not  require  cash  payment. 
The  balance  at  the  close  of  the  day  is  paid  only  pro- 
visionally, and  those  cheques  which  have  to  be  dis- 
honoured are  returned  within  an  hour  to  the  bank 
presenting  them.  Unless  the  irregularities  be  explained 
away,  or  removed,  the  presenting  cashier  then  signs  the 
following  form,  No.  6,  which  is  an  acknowledgment  that 
so  much  money  too  much  was  received  by  him  at  the 
last  clearing.  This  form  is  included  by  the  bank  dis- 


THE    CLEARING-HOUSE    SYSTEM.  277 

honouring  the  cheques,  in  its  out-clearing  parcel,  and 
the  matter  is  rectified  in  the  balance  of  the  next 
clearing. 

Form  No.  6. 

MANCHESTER    BANK    CLEARING. 


Manchester,   .      18 

We  shall  Credit 


in  next  clearing,  on  presentation  of  this  slip,  £>_ 
as  1/eloWf  for  unpaid  cheques. 

For 


The  settlement  in  the  Manchester  Clearing  House  is 
often  effected  in  less  time  than  it  would  take  to  read 
this  account  of  the  method,  and  the  work  goes  on  with 
noiseless  ease,  strongly  contrasting  with  the  turmoil  of 
the  London  House.  No  doubt,  the  amounts  cleared  are 
comparatively  insignificant  in  Manchester,  the  average 
daily  sums  being,  in  the  years  1872,  1873,  and  1874, 
respectively  £226,160,  £237,150,  and  £247,930,  or  little 
more  than  one-hundredth  part  of  the  daily  transactions 
in  the  Lombard  Street  House. 

The  Manchester  Clearing  House  is  managed  by  a 
committee  of  bankers,  of  which  the  chief  agent  of  the 
Bank  of  England  in  Manchester  is  the  chairman,  and 


278  MONEY. 

the  superintendence  of  the  clearing  work  is  conducted 
by  an  official  of  the  Bank  of  England.  Thus  the 
Bank,  while  naturally  taking  precedence,  harmoniously 
co-operates  with  the  local  bankers. 

New  York  Clearing  House. 

The  New  York  Clearing  House  was  established  in 
October,  1853,  and  has  become  a  most  important  institu- 
tion, embracing  59  banks,  as  compared  with  26  in 
London,  and  settling  transactions  hardly,  if  at  all, 
inferior  in  amount  to  those  of  the  London  house.  The 
general  method  of  settling  the  business  is  necessarily 
much  the  same  as  that  already  described,  but  it  seems 
to  be  in  some  respects  better  arranged  than  in  London. 
The  work  is  carried  on  in  a  fine  large  Exchange  Room, 
and  there  is  proper  accommodation  for  the  manager  and 
his  clerks,  instead  of  the  small  glass  box  in  which  the 
inspectors  sit  in  the  Lombard  Street  room. 

Each  New  York  bank  has  one  settling  clerk  in  the 
Exchange  Koom,  besides  a  messenger,  who  brings  and 
delivers  the  parcels  of  cheques  and  bills.  The  settling 
clerks  sit  in  a  series  of  desks  arranged  in  an  oval  form 
in  the  middle  of  the  spacious  room,  and  the  exchanges 
are  effected  by  an  equal  number  of  messengers  simul- 
taneously walking  round  the  desks,  delivering  the 
parcels  of  "out-clearing,"  and  receiving  those  of  "in- 
clearing,"  or  as  they  are  called  in  New  York  the  Credit 
and  Debit  Exchanges.  An  account  of  the  institution  will 
be  found  in  Gibbon's  work  on  "  The  Banks  of  New 


THE    CLEARING-HOUSE    SYSTEM.  279 

York."  There  are  said  to  be  no  less  than  fifteen  provin- 
cial clearing-houses  in  the  principal  cities  of  the  United 
States,  so  that  the  clearing  system  would  seem  to  be  more 
developed  there  than  in  the  United  Kingdom. 

Extension  of  the  Clearing  System. 

Until  within  the  last  few  years  there  existed  only 
two  bankers'  clearing  houses,  those  of  Lombard  Street 
and  New  York,  but  much  progress  has  recently  been 
made  in  extending  a  similar  system  to  other  places,  and 
even  to  other  branches  of  business.  The  Manchester 
Clearing  House  was  established  in  July,  1872,  and  New- 
castle has  a  similar  establishment.  On  the  continent 
only  a  single  city  has  yet  adopted  the  method.  In  Paris 
about  eighteen  bankers  have  formed  an  association, 
called  a  "  Chambre  des  Compensations,"  which  is  located 
in  the  Place  de  la  Bourse,  and  balances  the  reciprocal 
claims  of  these  firms  much  in  the  manner  of  the  English 
clearing  houses.  In  France,  Germany,  and  other  con- 
tinental countries  the  use  of  the  banker's  cheque  is 
much  less  -developed  than  in  England  and  America. 
In  Germany  a  person  wishing  to  remit  a  hundred 
pounds  will  often  collect  the  actual  coins,  seal  them  up 
in  a  bag  with  five  seals,  and  register  them  at  the  post- 
office.  Thanks  to  the  excellent  system  of  government 
Posies  existing  in  Germany,  this  method  of  remittance 
is  sufficiently  safe.  But  it  is  evident  that  where  the 
monetary  arrangements  of  a  country  are  of  such  a 
kind  there  is  no  need  of  a  clearing  house. 


280  MONEY. 

The  method  of  balancing  claims  needs  by  no  means 
to  be  restricted  to  the  business  of  banking.  As,  indeed, 
the  monetary  transactions  of  any  locality  come  to  a 
focus  in  the  banks,  the  principal  clearing  will  always 
be  in  the  hands  of  bankers.  But  wherever  a  set  of 
traders  have  numerous  reciprocal  claims,  they  may  find 
it  desirable  to  set  up  their  own  clearing  house.  As  long 
ago  as  1842,  it  occurred  to  Robert  Stephenson  and 
Mr.  K.  Morison,  that  the  principle  of  the  City  Clearing 
House  might  be  advantageously  applied  to  settling  the 
very  complicated  accounts  arising  between  the  railway 
companies,  which  have  through  booking  arrangements. 
The  work  constantly  carried  on  in  the  great  house  full  of 
accountants  at  Euston  Square  is  vastly  more  complicated 
and  various  than  that  of  a  bankers'  clearing  house ; 
but  the  final  result  is  to  ascertain  how  much  each 
railway  company  is  indebted  to  each  other  one.  The 
balance  due  to  or  from  each  company  is  then  paid  by 
a  transfer  at  the  bankers. 

Within  the  last  twelve  months  an  attempt  has  been 
made,  unsuccessfully  as  yet,  to  introduce  the  general 
use  of  cheques  into  Liverpool,  where  great  sums  of 
money  are  constantly  passing,  especially  in  the  cotton 
market.  For  reasons  which  it  would  be  difficult  to  trace 
out  satisfactorily,  the  Liverpool  merchants  and  bankers 
have  never  adopted  the  use  of  cheques  to  the  same 
extent  and  in  the  same  way  as  in  other  commercial 
towns.  Many  firms  in  Liverpool  still  refuse  to  receive 
payment  by  cheques,  and  only  a  year  or  two  ago  it  was 
a  common  practice  for  a  Manchester  firm  to  send  a  clerk 


THE    CLEARING-HOUSE    SYSTEM.  281 

to  Liverpool  by  railway  with  a  bundle  of  bank-notes  to 
make  payments.  At  present,  as  I  am  informed,  bank 
bills  payable  at  sight,  and  forwarded  by  post,  are 
substituted  for  Bank  of  England  notes. 

A  Liverpool  stock  or  cotton  broker,  wanting  to 
make  a  payment,  draws  money  out  of  his  bank  in 
notes  and  gold,  and  his  clerks  carry  it  about  the  town. 
Every  evening  a  great  number  of  small  cash-boxes, 
containing  large  sums  of  money,  are  deposited  at  a 
well-known  silversmith's  shop,  opposite  the  Town  Hall, 
for  safe  custody  during  the  night.  A  great  amount  of 
capital  is  thus  kept  lying  idle,  and  it  is  surprising  that 
the  bankers  do  not  secure  this  sum,  as  an  addition  to 
their  deposits,  by  removing  every  obstacle.  At  present 
the  practice  is  to  charge  i  or  J  per  cent,  commission, 
whereas  the  actual  cost  of  the  accountants'  work  by 
which  the  bank  transfers  are  accomplished  is  almost 
nominal  in  regard  to  large  transactions. 

An  important  extension  of  the  clearing  principle 
was  effected  by  the  establishment,  in  1874,  of  the  Lon- 
don Stock  Exchange  Clearing  House,  which  undertakes 
to  clear,  not  sums  of  money,  but  quantities  of  stock. 
As  stock  brokers  settle  their  transactions  only  once  a 
fortnight,  or  in  consols  once  a  month,  it  naturally 
arises  that,  in  the  intervals,  the  same  broker  will 
usually  have  bought  the  same  kind  of  stock  for  one 
client  and  sold  it  for  another.  The  very  same  stock 
may  have  passed  through  several  different  hands,  and 
the  same  brokers  may  have  had  reciprocal  dealings 
with  each  other.  Instead,  then,  of  actually  making 


282  MONEY. 

transfers  of  stock  for  each  transaction,  and  paying  by 
cheques  which  greatly  swell  the  business  of  the  Lombard 
Street  Clearing  House  on  settling  days,  a  plan  has  been 
arranged,  according  to  which  each  member  of  the  Clear- 
ing House  prepares  a  statement  of  the  net  amount  of 
each  stock  which  he  has  to  receive  from  or  deliver  to  each 
other  member.  The  manager  of  the  house,  after  verifying 
these  accounts,  which  should  balance  in  the  aggregate, 
directs  the  debtor  members  to  transfer  quantities  of 
stock  to  the  creditor  members  in  such  a  way  as  to  close 
all  the  transactions.  It  will  be  noticed  that,  for  pretty 
obvious  reasons,  the  transfers  are  made  in  the  stock 
exchange,  directly  from  broker  to  broker,  and  not  to  the 
manager  of  the  Clearing  House,  as  in  banking  trans- 
actions. A  separate  clearing  has,  of  course,  to  be 
made  in  each  kind  of  stock.  .It  is  found  that  the 
quantities  actually  transferred  do  not  exceed  10  per 
cent,  of  the  whole  transactions  cleared,  and  the  cheques 
drawn  are  diminished  on  settling  days  as  much  as  ten 
millions  sterling. 

Still  more  recently  the  Cotton  Brokers'  Association 
of  Liverpool,  although  unable  to  apply  the  system  of 
clearing  as  yet  to  their  money  transactions,  have  arranged 
a  clearing  system  for  the  settlement  of  business  con- 
nected with  sales  of  cotton  "  to  arrive."  Under  the  new 
arrangement  the  first  seller  and  the  last  buyer  come  into 
contact,  and  all  intermediate  business,  which  sometimes 
occasioned  much  dispute  and  delay  from  contracts  in- 
volving many  middle-men,  wih1  be,  as  it  were,  cancelled 
by  the  Clearing  House.  The  business,  indeed,  is  being 


THE    CLEABING-HOUSE    SYSTEM.  283 

extended,  so  that  all  contracts,  declarations,  and  pay- 
ments will  be  effected  through  the  agency  of  the  asso- 
ciation. 

It  may  very  well  admit  of  question  whether  we  have 
at  all  reached  the  limit  of  the  advantageous  applica- 
tion of  the  clearing  principle.  From  bankers'  trans- 
actions it  has  been  extended  to  railways,  stock  exchange, 
and  cotton  brokers'  business.  It  is  conceivable  that  any 
other  body  of  merchants,  brokers,  publishers,  or  others 
who  have  frequent  pecuniary  claims  upon  each  other, 
might  have  a  clearing  meeting  once  or  twice  a  week. 
Suggestions  to  this  effect  have  already  been  made,  and  I 
am  told  that  in  the  Glasgow  iron  market,  a  settlement 
day  for  the  clearing  of  mutual  transactions  has  been 
established. 

Advantages  of  the  Cheque  and  Clearing  System. 

Eeturning  to  the  subject  of  the  bankers'  Clearing 
Houses,  it  is  to  be  remarked  concerning  the  vast  system 
of  relations  which  now  exists  between  English  banks, 
that  it  has  grown  spontaneously,  uninvented,  unauthor- 
ized by  the  legislature,  and  only  recognized  by  the 
judges  when  firmly  established  as  a  matter  of  business 
custom.  No  Act  of  Parliament  has  been  passed  to 
facilitate  the  operations  of  clearing,  and  it  is  only  by 
an  understanding  between  the  banks,  that  the  presenta- 
tion of  cheques  and  bills  through  the  Clearing  House,  or 
their  settlement  by  the  payment  of  a  balance,  is  regarded 
as  legally  valid. 


284  MONEY. 

The  advantages  of  the  system  are  evidently  of 
enormous  magnitude.  All  the  larger  payments  are  made 
with  a  minimum  of  risk,  loss  of  time,  trouble,  or  use  of 
the  precious  metals.  While  the  cheque  representing  a 
payment  is  travelling  about  the  country,  the  money 
which  it  is  transferring  is  reposing  in  the  vaults  of  some 
bank,  or  rather,  not  being  needed  in  the  operation  at  all, 
is  lent  or  sent  out  of  the  country,  so  that  its  interest  is 
saved.  We  found  in  p.  165  that  the  loss  of  interest  upon 
the  metallic  money  now  circulating  or  stored  up  in  the 
United  Kingdom,  amounts  to  between  four  and  five 
millions  annually.  If  payments  were  now  made  by 
coin  only,  many  times  as  much  metallic  money  would 
be  needed. 

The  security  with  which  the  payments  are  effected 
is  also  an  element  of  importance.  Specie  when  trans- 
mitted in  large  sums,  is  always  a  temptation  to  thieves, 
and  has  usually  to  be  accompanied  by  one  or  more 
guards.  Through  the  agency  of  banks,  whether  by 
crossed  cheques  or  credit  notes,  the  largest  payments 
may  be  made  with  almost  absolute  immunity  from  risk. 
The  cheques,  bills,  and  other  documents  transferred  in 
the  clearing  houses  are,  as  a  general  rule,  so  crossed  or 
endorsed  as  to  be  of  no  value  to  any  one  but  the  legal 
owners,  and  in  any  case  are  regarded  by  thieves  as 
"  duffer,"  with  which  they  dare  not  meddle. 


THE    CLEARING-HOUSE    SYSTEM.  285 

Proportion  of  Cash  Payments. 

It  is  surprising  to  find  to  what  an  extent  paper 
documents  have  replaced  coin  as  a  medium  of  exchange 
in  some  of  the  principal  centres  of  "business.  In  the 
Statistical  Journal  for  September,  1865,  Sir  J.  Luhbock 
published  some  particulars  concerning  the  business  of 
his  bank  during  the  last  few  days  of  1864.  Trans- 
actions to  the  amount  of  ^623, 000,000  were  effected 
by  the  use  of  coin  and  documents,  as  shown  in  the 
following  statement : — 

PER   CENT. 

Cheques  and  Bills  passed  through  the  Clearing  House  70'8 

Cheques  and  Bills  not  cleared 23'3 

Bank  of  England  Notes 5'0 

Coin         -6 

Country  Bank-notes '3 

100-0 

The  sums  of  money  paid  in  by  town  customers 
amounted  to  ;£19, 000,000,  and  when  analysed  gave 
the  following  results : — 

PER  CENT. 

Cheques  and  Bills 96'8 

Bank  of  England  Notes .  2'2 

Country  Bank-notes      ..*.. *4 

Coin        -6 

100-0 

It  is  not  for  a  moment  to  be  supposed  that  these  figures 
represent  the  average  use  of  coin  in  banking  transac- 
tions. The.  proportional  amounts  of  different  kinds  of 


286  MONEY. 

money  and  commercial  documents  used  in  different 
parts  of  the  country,  in  different  tra.les,  or  in  banks  of 
different  size  and  character  vary  widely.  It  is  much  to 
be  desired  that  bankers  and  others  who  have  the  facts 
before  them  should  publish  more  copious  information 
on  the  subject.  In  Manchester  the  use  of  Bank  of 
England  notes  appears  to  be  much  more  extensive  than 
in  London.  Mr.  K.  H.  Inglis  Palgrave  gave  in  the 
Statistical  Journal  for  March,  1873  (p.  86),  an  estimate 
prepared  for  him  by  Mr.  Langton,  the  Managing  Director 
of  the  Manchester  and  Salford  Bank,  of  the  proportion 
of  cash  payments  made  in  that  bank.  It  appears  that 
coin  and  notes  formed  53  per  cent,  of  the  total  turn-over 
in  1859,  42  per  cent,  in  1864,  and  only  32  per  cent,  in 
1872,  so  that  a  rapid  decrease  has  been  going  on.  But 
we  find  that  in  1872  the  amount  of  notes  was  still 
large,  the  turn-over  of  customers'  accounts  being  thus 
composed : — 

PER  CENT. 

Cheques,  Bills,  etc 68 

Bank-notes 27 

Coin 5 

100 

I  have  endeavoured  to  form  some  notion  of  the  com- 
parative amounts  of  cheques  and  bills  which  are  cleared 
off  at  successive  points  in  the  organization  of  the  bank- 
ing system.  It  is  very  desirable  that  we  should  learn 
what  proportion  the  transactions  of  the  Clearing  House 
bear  to  the  whole  transactions  of  the  banks  of  the 
kingdom.  There  would  not  be  much  difficulty  in  form- 
ing a  fair  estimate  if  we  had  from  one  or  more  banks 


THE    CLEARING-HOUSE    SYSTEM.  287 

in  each  of  the  principal  towns  a  statement  of  the  com- 
parative amounts  of  cheques  dealt  with  in  various 
manners.  According  to  information  kindly  furnished 
to  me  by  the  authorities  of  one  of  the  principal  banks 
of  Manchester,  I  find  that,  during  the  months  July  to 
October,  1874,  the  cheques  and  bills  on  demand  presented 
on  or  through  the  bank  were  disposed  of  as  follows : — 

PER  CENT. 

Cheques    paid  in   Coin   and    Bank-notes   over  the 

Counter 34'2 

Cheques  on  Selves  paid  to  Credit  of  Account  .  .  .  25'4 
Cheques  presented  through  Manchester  Clearing 

House 22-5 

Cheques  and  Bills  on  demand  on  London  presented 

through  London  Clearing  House  10'8 

Cheques  on  Country  Bankers  presented  through 

the  London  Clearing  House 3'5 

Cheques  on  Country  Bankers  presented  direct  .  .  3*6 

100-0 

Although  considerable  trouble  has  been  spent  in  the 
preparation  of  this  account,  it  seems  doubtful  whether 
the  items  are  complete  and  correct,  and  I  give  it  more  as 
a  specimen  of  the  kind  of  information  which  is  much 
wanted  than  as  a  reliable  statement. 


Cases  to  which  the  Clearing  System  is  inapplicable. 

It  will  now  be  sufficiently  apparent  that,  so  long  as 
trade  is  reciprocal,  the  cheque  and  clearing  system  can 
arrange  -all  exchanges  without  the  use  of  coin.  The 
values  of  goods  are  estimated  and  expressed  in  terms  of 


288  MONEY. 

gold,  which  acts  as  the  common  denominator  of  value, 
but  metallic  money  ceases  to  be  the  medium  of  exchange. 
The  banking  organization  effects  what  I  have  heard 
Mr.  W.  Langton  describe,  as  a  restoration  of  barter. 
But  it  happens  in  some  cases  that  transactions  are  not 
reciprocal,  and  cannot  be  made  to  balance.  In  certain 
trades  there  is  a  permanent  set  of  the  goods  in  one 
direction.  In  the  Manchester  cotton  trade,  for  instance, 
the  manufacturers  in  purchasing  cotton  from  the  Liver- 
pool merchants,  pay  with  cash  or  short  credits.  The 
goods  when  completed  are  often  shipped  again  at  Liver- 
pool for  foreign  consignees  at  long  credits,  but  are  not 
generally  purchased  by  the  Liverpool  merchants.  Con- 
sequently, while  the  Manchester  manufacturer  owes  the 
Liverpool  merchant  for  the  whole  cost  of  the  raw 
material,  and  for  the  shipping  charges  and  freight  upon 
the  goods  sent  abroad,  there  are  no  equivalent  claims  of 
Manchester  merchants  against  Liverpool.  The  foreign 
consignees  of  the  goods  pay  for  them  by  bills  upon 
London.  Now  if  the  Manchester  manufacturers  held 
their  funds  in  Manchester,  and  the  Liverpool  merchants 
their  funds  in  Liverpool,  there  would  have  to  be  a  con- 
stant current  of  money  from  London  to  Manchester,  and 
from  Manchester  to  Liverpool,  whence  it  would  go  abroad 
to  .pay  for  the  raw  material.  This  inconvenient  state 
of  things  is  remedied  to  a  certain  extent,  as  we  shall  see 
in  Chapter  XXIII.,  by  making  London  the  head-quarters 
and  clearing  house  both  of  home  and  foreign  transactions. 
But  there  is  always  a  liability  that  claims  expressed 
in  metallic  money,  and  actually  capable  of  being  de- 


THE    CLEARING-HOUSE    SYSTEM.  289 

manded  in  that  shape  at  the  option  of  the  owner,  will 
sometimes  be  pressed.  In  certain  states  of  trade,  or 
under  certain  contingent  circumstances,  the  holders  of 
cheques  require  gold,  and  bankers  who  have  become 
accustomed  to  consider  metallic  reserves  as  almost 
superfluous,  find  themselves  suddenly  in  a  difficult 
position.  Such,  as  we  shall  see  in  Chapter  XXIV.,  is 
the  real  cause  of  the  present  instability  of  the  English 
money  market. 


290  MONEY, 


CHAPTER  XXIL 

THE    CHEQUE    BANK. 

THE  Cheque  and  Clearing  System,  so  far  as  we  have 
hitherto  considered  it,  is  mainly  restricted  to  the 
arrangement  of  considerable  payments.  No  one  can 
enjoy  its  advantages  unless  he  keeps  a  hanking  account, 
and  for  this  purpose  he  must  he  ahle  to  command  a 
certain  sum  of  money,  and  must  have  a  sufficiently  good 
position  and  credit  to  be  entrusted  by  a  banker  with  a 
cheque  book.  The  result  is  that  the  larger  part  of  the 
population  is  entirely  outside  the  banking  system,  and 
must  either  use  coin,  postage  stamps,  or  post-office 
orders  in  making  payments. 

A  very  ingenious  attempt  is  now  being  made  to 
extend  the  area  of  banking  to  the  masses  by  the  institu- 
tion of  the  Cheque  Bank.  When  preparing  materials 
for  this  book,  I  was  so  much  struck  by  the  way  in  which 
this  new  bank  seems  to  be  adapted  to  complete  the 
cheque  and  clearing  system  in  a  downward  direction, 
that  I  applied  to  Mr.  James  Hertz,  the  able  inventor  of 
the  scheme,  for  information  upon  the  subject,  and  have 
been  enabled  to  inquire  minutely  into  it. 


THE   CHEQUE   BANK.  291 

The  weak  point  of  the  present  ordinary  cheque  book 
is,  that  a  person  once  getting  a  book  full  of  blank 
cheques,  can  fill  them  up  for  any  amounts,  irrespective 
of  the  balance  against  which  they  are  supposed  to  be 
drawn.  Here  is  an  opening  for  easy  fraud,  if  cheques 
were  generally  received  from  strangers  without  inquiry. 
The  Cheque  Bank  proceeds  on  the  new  principle  of 
issuing  cheques  which  can  be  filled  up  only  to  limited 
amounts,  as  shown  by  printed  and  indelible  perforated 
notices  upon  the  forms.  These  cheques,  too,  are  only 
to  be  had  in  exchange  for  the  utmost  sum  for  which 
they  can  be  drawn,  which  sum  is  retained  as  a  deposit 
until  each  corresponding  cheque  has  been  presented.  It 
follows  that  each  cheque,  when  duly  filled  up  and  signed 
by  the  owner,  is  as  good  as  a  bank-note  issued  against  a 
documentary  reserve.  It  is  true  that  cheque  books  or 
forms  may  be  lost  or  purloined,  and  then  fraudulently 
signed  and  issued;  but,  being  drawn  to  order  and 
crossed,  these  documents  are  very  dangerous  to  meddle 
with  in  a  criminal  manner,  and,  in  the  only  instance 
in  which  fraud  has  yet  been  attempted,  swift  punishment 
followed. 

Relation  of  the  Cheque  Bank  to  other  Banks. 

We  have  seen  how  much  has  been  accomplished 
by  establishing  relations  between  banks,  as  branches, 
agents,  or  correspondents  of  each  other.  The  Cheque 
Bank  carries  out  a  similar  system  to  the  utmost  extent 
by  establishing  relations  with  almost  all  the  banks  of 


292  MONEY. 

the  United  Kingdom,  as  -well  as  with  most  foreign 
banks  of  importance.  Already  984  English,  Irish,  or 
Scotch  banks,  have  entered  into  relations  with  the 
Cheque  Bank,  and  596  colonial  or  foreign  banks  cash 
the  cheques.  One  advantage  of  this  arrangement  is, 
that  the  sphere  of  the  cheque  system  can  be  greatly 
extended  without  any  equal  increase  of  trouble  and 
risk.  Whenever  a  bank  opens  a  new  account  with  an 
individual,  that  account  has  to  be  kept  apart  in  the 
ledger,  and  constantly  watched.  But  a  bank  can  sell 
Cheque  Bank  cheques  to  any  amount,  without  opening 
separate  accounts  with  the  purchasers,  and  may  also 
pay  such  cheques  when  presented  without  risk.  The 
Cheque  Bank  thus  aims  at  becoming  a  great  institu- 
tion of  accountants,  operating  for  the  most  part  through 
other  banks,  but  relieving  them  of  much  of  the  risk  and 
trouble  of  small  transactions.  The  Bank  of  England  is 
a  bankers'  bank  in  the  sense  that  it  holds  the  reserves 
of  other  banks,  and  makes  those  final  payments  of  cash 
which  close  the  general  balance  of  transactions.  The 
Cheque  Bank  seems  to  be  a  bankers'  bank  in  the 
opposite  sense  of  making  deposits  in  all  other  banks 
and  employing  them  as  agents. 

A  peculiar  feature  of  the  Cheque  Bank  is  that  it 
entirely  abstains  from  using,  or  even  holding,  the  money 
deposited.  All  money  received  for  cheque  books  is  left 
in  the  hands  of  the  bankers,  through  whom  they  are 
issued,  or  transferred  to  other  bankers,  as  may  be  needed 
for  meeting  the  cheques  presented.  The  interest  paid 
by  these  bankers  will  be  the  source  of  profit,  and  as  the 


THE    CHEQUE    BANK.  293 

money  thus  lies  in  the  care  of  the  most  wealthy  and 
reputable  firms  in  the  kingdom,  it  could  not  he  lost  in 
any  appreciable  quantity,  except  by  the  break-down  of 
the  whole  banking  system  of  the  country.  It  would 
hardly  be  true  to  say  that  these  cheques  correspond 
to  notes  issued  on  the  deposit  of  government  funds, 
because  each  agent-bank  can  use  at  its  own  discretion 
the  portion  of  the  funds  of  the  Cheque  Bank  in  its 
possession.  Nevertheless,  as  the  portion  in  the  hands  of 
any  one  bank  will  usually  be  a  small  fraction  of  the 
whole,  and  there  is,  moreover,  a  guarantee  fund  of  consols 
in  the  background,  the  system  of  issue  is  more  closely 
analogous  to  that  of  a  documentary  reserve  than  any 
other. 

The  Cheque  Bank  as  a  Monetary  Agent. 

The  Cheque  Bank  appears  to  aim  at  becoming  the 
medium  for  the  accomplishment  of  an  immense  mass  of 
small  payments.  Small  pensions  and  annuities,  small 
dividends,  small  disbursements  by  officers  of  depart- 
ments, by  agents,  clerks,  or  even  domestic  servants  are 
made  through  it.  A  book  of  the  Cheque  Bank  cheques 
can  be  safely  trusted  to  almost  any  servant  or  agent  who 
can  write,  and  the  cheque  when  presented  forms  a  record 
of  the  way  in  which  he  has  applied  the  money.  No  one 
can  venture  in  like  manner  to  give  signed  blank  cheques 
to  a  servant,  as  they  may  be  filled  up  ior  unlimited 
amounts,  and  the  Cheque  Bank  cheques  are  evidently 
better  than  a  sum  of  metallic  money,  which  may  be  more 
readily  misapplied,  purloined,  or  lost. 


294  MONEY. 

The  recipient  of  such  cheques  finds  them  one  of  the 
most  convenient  possible  forms  of  remittance,  because  they 
will  he  cashed  by  almost  any  banker,  and  will  therefore 
be  received  as  cash  by  any  person  who  has  acquired  suffi- 
cient knowledge  of  their  nature.  Thus  the  Cheque  Bank 
seems  to  be  capable  of  replacing  with  great  advantage 
the  money-order  system  of  the  English  Post-Office. 

To  procure  a  post-office  order  it  is  requisite  to  apply  at 
an  office  and  wait  while  certain  forms  are  being  filled  up. 
A  definite  office  of  payment  must  be  selected,  and  the 
receiver  of  the  order  can  obtain  payment,  as  a  general 
rule,  only  by  applying  personally  at  the  office,  and  giving 
the  name  of  the  sender.  Even  if  a  person  cannot  afford 
to  purchase  a  book  of  Cheque  Bank  cheques,  he  can,  in 
towns  where  agencies  are  established  for  the  purpose, 
buy  single  cheques  filled  up  for  any  odd  sum  with  less 
formality  than  at  the  post-office,  and  these  cheques  are 
payable  not  at  one  office,  but  at  almost  any  bank  in  the 
United  Kingdom  and  in  most  foreign  towns.  They  can 
afterwards  be  restricted  in  payment,  if  desired,  to  any 
particular  bank.  The  cost  of  remittance  by  cheques  will 
on  the  average  be  lower  than  by  money  orders,  since  the 
Post-Office  makes  charges  for  inland  orders,  increasing 
from  Id.  for  sums  under  10s.  to  Is.  for  a  £10  order, 
with  much  higher  charges  for  orders  to  be  paid  in 
certain  colonies  or  foreign  countries.  The  Cheque  Bank 
cheque  costs  only  one  penny  and  one-fifth  of  a  penny  in 
excess  of  the  sum  remitted,  and  of  this  charge  the  penny 
is  for  the  government  stamp  duty  and  represents  so 
much  public  revenue. 


THE    CHEQUE    BANK.  295 

The  government  can  have  no  reason  for  opposing  the 
Cheque  Bank,  because  if  successful  it  must  earn  for  the 
Chancellor  of  the  Exchequer  a  large  annual  revenue. 
The  money-order  system,  on  the  other  hand,  in  spite  of 
the  higher  charges,  is  understood  to  yield  no  profit,  and  is 
rather  a  burden  upon  the  department.  It  is  said  that 
the  issue  of  every  money  order  involves  the  filling  up  of 
eight  or  nine  forms,  and  the  amount  of  labour  rendered 
requisite  swallows  up  the  revenue.  It  is  a  very  striking 
instance  of  the  comparative  inefficiency  of  government 
industry,  except  in  special  cases,  that  a  single  banking 
company  can  bring  into  use  a  form  of  remittance  avail- 
able in  all  parts  of  the  world,  and  far  cheaper  than  post- 
office  orders,  and  yet  pay  duty  upon  their  transactions. 

The  Cheque  Bank  also  aims  at  becoming  a  collecting 
as  well  as  a  paying  agency.  Any  public  institution 
needing  to  collect  a  subscription,  for  instance,  has  only  to 
procure  a  "paying-in  "  form,  or  credit  note,  and  the  sum 
inserted  therein  will  be  received  by  any  of  the  numerous 
banks  in  relation.  Thus  small  debts  and  subscriptions 
may  be  readily  collected  without  trouble  or  expense  in 
any  part  of  the  country. 

Payment  of  Wages  by  Cheques. 

The  managers  of  the  Cheque  Bank  hope  to  substitute 
their  cheques  for  the  coin  now  used  by  manufacturers 
in  payment  of  wages.  If  this  could  be  accomplished  it 
would  be  convenient  rather  than  otherwise  to  bankers, 

who  are  weekly  called  upon  to  furnish  large  sums  in  gold 
'  14 


296  MONEY, 

and  silver  coin,  and  have  the  trouble  and  cost  of  hold- 
ing and  counting  a  sufficient  stock.  Now,  if  a  master  in 
paying  his  men  presented  them  with  small  cheques,  or, 
perhaps  better  still,  with  cheques  for  even  sums,  and  the 
balance  in  silver,  the  cheques  would  be  cashed  by  shop- 
keepers, and  would  be  deposited  by  them  in  the  banks, 
or  might  even  be  bought  back  in  large  sums  by  the 
masters  for  further  use.  It  was  at  one  time  the  practice 
of  great  railway  contractors  to  issue  tally  checks  in  the 
form  of  one,  two,  or  five-shilling  cards,  which  were  paid 
to  their  workmen,  and  circulated  among  the  publicans 
and  tradesmen  of  the  neighbourhood,  until  taken  back 
by  the  contractor  in  wholesale.  Such  cheques  con- 
stituted true  representative  money,  but  would  be  of 
doubtful  legality.  The  Cheque  Bank  cheques  might 
serve  the  came  purpose,  and  have  been  declared  legal, 
but  it  is  yet  very  doubtful  how  far  the  wholesome 
practice  of  immediately  presenting  ordinary  cheques 
will  stand  in  the  way  of  the  continued  circulation  of 
other  cheques,  for  which  there  is  no  need  of  immediate 
presentation.  Time  after  time  we  have  found  that  habit 
and  custom  exercise  an  immense  and  very  unmanageable 
influence  in  monetary  affairs,  and  it  will  probably  take 
a  long  time  to  teach  the  public  to  look  upon  a  cheque  as 
a  safe  document  to  keep. 

The  Cheque  Bank  as  a  Savings  Bank. 

Already  the  Cheque  Bank  serves  as  a  savings  bank 
into  which  persons  may  put  surplus  money  for  security, 


THE    CHEQUE    BANK.  297 

receiving  as  an  acknowledgment  the  cheque  forms  by 
which  it  can  be  drawn  out  or  paid  away  with  ease.  No 
interest,  however,  is  paid  on  such  deposits.  It  seems  to 
me,  however,  that  the  bank,  if  successful  in  its  present 
aims,  might  readily  become  the  most  admirable  of 
savings  banks.  Instead  of  issuing  cheques  payable  at 
any  moment,  it  might  issue  through  its  agent-banks, 
deposit  receipts,  bills,  or,  what  comes  to  much  the  same 
thing,  post-dated  cheques,  the  interest  to  be  paid  at  the 
time  of  deposit  as  a  discount  at  the  rate  of  2  or  2J-  per 
cent."  This  receipt  could  be  retained,  transferred  by  en- 
dorsement, or  agaiu  discounted  by  the  Cheque  Bank.  If 
retained  until  maturity  it  would  become  payable  like  a 
cheque  at  any  bank  in  relation  with  the  Cheque  Bank. 
The  money  deposited  in  this  way  might  be  invested  in 
consols  at  3J  per  cent.,  and  the  cost  of  the  documents 
and  accountants'  work,  being  slight,  might  leave  a  fair 
margin  of  profit. 

The  Post-Office  Savings  Bank  system  as  established 
by  Mr.  Gladstone  is  an  admirable  institution;  it  has 
been  very  successful,  and  lias  done  great  service  in 
increasing  providence.  But  it  is  troublesome  and  costly 
in  working,  and  leaves  no  profit  to  the  state.  Already 
the  Scotch  banks  serve  almost  in  the  capacity  of  savings 
banks  by  receiving  small  fixed  deposits ;  and  it  is  well 
worthy  of  consideration  whether,  by  the  assistance  of  the 
Cheque  Bank,  almost  all  the  English  banks  might  not. 
be  converted  into  savings  banks,  to  the  advantage  of 
every  one. 


298  MONEY. 

Results  of  the  Cheque  Bank  System. 

I  have  thought  it  quite  suitable  to  this  book  to 
enter  somewhat  minutely  into  the  actual  and  possible 
work  done  by  the  Cheque  Bank,  because,  if  successful, 
the  institution  opens  an  indefinite  sphere  for  financial 
improvement.  The  institution  is,  indeed,  at  present  a 
mere  experiment,  undertaken  at  the  risk  of  shareholders, 
and  it  can  only  succeed  by  offering  conveniences  to  the 
public  and  the  body  of  bankers.  It  may  succeed  in 
some  of  its  schemes,  and  not  in  others,  but  in  any  case 
it  will  tend  to  replace  coin  payments  by  cheque  pay- 
ments, to  be  balanced  off  in  the  general  London  clearing. 
The  profits  of  the  bank  depend  upon  the  very  small 
charge  of  J-  of  a  penny  for  each  cheque,  and  the  interest 
on  deposits.  The  amount  of  deposits  remaining  undrawn 
depends  upon  three  circumstances  :  (1)  the  time  before 
the  cheque  is  utilized ;  (2)  the  time  it  is  in  circulation, 
or  travelling  about,  and  (3)  the  difference  between  the 
sum  drawn  and  that  deposited.  The  average  duration 
of  circulation,  I  am  informed,  was  lately  ten  days,  but 
many  cheques  have  already  been  out  a  year. 

I  should  add  that,  in  describing  with  some  detail  the 
operations  of  the  Cheque  Bank,  I  have  no  interest  in 
the  success  of  the  institution  other  than  a  strictly 
scientific  interest.  In  any  case  it  is  a  most  ingenious 
innovation,  and  if  successful  cannot  fail  to  benefit  the 
community  in  a  high  degree,  adding  a  new  feature  to  a 
banking  system  already  wonderfully  organized. 


CHAPTEE  XXIII. 

FOREIGN  BILLS  OF  EXCHANGE. 

IN  early  times  foreign  trade  consisted  in  the  direct 
exchange  of  commodities.  A  caravan  set  out  with  a 
variety  of  manufactured  articles,  across  the  deserts  of 
Arabia  or  Sahara,  and  came  back  with  the  ivory,  spices, 
and  other  valuable  raw  produce  obtained  by  barter. 
In  later  times  the  merchant  loaded  his  own  ship  and 
sent  her  forth  on  an  adventure,  trusting  that  his  ship- 
master would  sell  the  cargo  to  advantage,  and,  with 
the  proceeds,  bring  back  another  cargo  to  be  sold  to 
great  profit  at  home.  Trade  was  thus  evidently  recipro- 
cal, and  what  was  sent  out  paid  for  what  was  brought 
back,  so  that  little  or  no  money  was  kept  idle  in  the 
mean  time. 

Wherever  this  direct  reciprocal  exchange  did  not  exist 
it  was  necessary  either  to  transmit  metallic  money,  or  to 
devise  some  mode  of  transferring  debts.  Now  the  trans- 
mission of  money  not  only  causes  the  loss  of  interest 
during  the  interval  of  transit,  but  leads  to  the  expense 
of  guarding  it,  and  the  liability  of  total  loss.  Many 
centuries  ago,  accordingly,  it  was  discovered  that  the 


300  MONEY. 

use  of  paper  documents  would  economize,  if  not  alto- 
gether render  needless,  the  use  of  metallic  money  in 
foreign  trade. 

Origin  and  Nature  of  Bills  of  Exchange. 

Even  the  Romans  appear  to  have  been  acquainted  in 
a  slight  degree  with  the  system  of  foreign  bills  of  ex- 
change ;  but  it  is  to  the  early  Italian,  and  especially  the 
Jewish  merchants,  that  we  owe  the  development  of  the 
practice.  The  history  of  the  subject  is  buried  in  much 
obscurity,  but  there  is  evidence  that,  as  early  as  the 
fourteenth  century,  the  use  of  bills  of  exchange  was 
fully  established.  The  forms  of  the  bills,  and  the  laws 
and  customs  relating  to  them,  were  then  much  the  same 
as  in  the  present  day. 

A  bill  is  nothing  but  an  order  to  pay  money  addressed 
by  the  drawer  to  the  drawee,  or  person  on  whom  it 
is  drawn,  specifying  the  amount  to  be  paid,  the  time 
of  payment,  and  the  person  to  whom  it  is  to  be  paid. 
Whenever  a  bill  is  drawn,  it  is  to  be  presumed  that  a  debt 
is  due  from  the  drawee  to  the  drawer.  When  presented 
i  to  the  drawee  and  accepted  by  him,  this  acceptance  is 
an  acknowledgment  of  the  existence  of  the  debt.  The 
bill,  although  drawn  in  favour  of  a  particular  person,  is 
transferable  by  endorsement,  and  thus  represents  a  nego- 
tiable claim  to  receive  money  at  a  future  date  in  a  distant 
country.  Hence  it  is  capable  of  being  transmitted  in 
discharge  of  another  debt  of  equal  amount. 

England  buys  every  year  from  America    a    great 


FOREIGN   BILLS    OF    EXCHANGE.  801 

quantity  of  cotton,  corn,  pork,  and  many  other  articles. 
America  at  the  same  time  buys  from  England  iron, 
linen,  silk,  and  other  manufactured  goods.  It  would  be 
obviously  absurd  that  a  double  current  of  specie  should 
be  passing  across  the  Atlantic  Ocean  in  payment  for 
these  goods,  when  the  intervention  of  a  few  paper 
acknowledgments  of  debt  will  enable  the  goods  passing 
in  one  direction  to  pay  for  those  going  in  the  opposite 
direction.  The  American  merchant  who  has  shipped 
cotton  to  England  can  draw  a  bill  upon  the  consignee  to 
an  amount  not  exceeding  the  value  of  the  cotton.  Selling 
this  bill  in  New  York  to  a  party  who  has  imported  iron 
from  England  to  an  equivalent  amount,  it  will  be  trans- 
mitted by  post  to  the  English  creditor,  presented  for 
acceptance  to  the  English  debtor,  and  one  payment  of 
cash  on  maturity  will  close  the  whole  circle  of  trans- 
actions. Money  intervenes  twice  over,  indeed,  once  when 
the  bill  is  sold  in  New  York,  once  when  it  is  finally 
cancelled  in  England;  but  it  is  evident  that  payment 
between  two  parties  in  one  town  is  substituted  for  pay- 
ment across  the  whole  breadth  of  the  Atlantic.  Moreover, 
the  payments  may  be  effected  by  the  use  of  cheques,  or 
the  bills  when  due  may  themselves  be  presented  through 
the  Clearing  House,  and  balanced  off  against  other  bills 
and  cheques.  Thus  the  use  of  metallic  money  seems  to 
be  rendered  almost  superfluous,  and,  so  long  as  there  is 
no  great  disturbance  in  the  balance  of  exports  and 
imports,  foreign  trade  is  restored  to  a  system  of  perfected 
barter. 


302  MONEY. 

Trade  in  Foreign  Bills. 

It  is  an  unnatural  supposition  that  every  importer  of 
goods  will  meet  with  an  exporter  of  goods  to  the  same 
amount,  so  that  two  transactions  will  exactly  balance 
each  other.  But  there  are  many  merchants  in  Liverpool 
indebted  to  American  merchants,  and  many  American 
merchants  indebted  to  others  in  Liverpool.  Hence  there 
will  be  a  continual  supply  of  bills  of  various  amounts, 
and  a  continual  demand,  and  it  becomes  a  profitable 
business  for  certain  houses  to  deal  in  the  bills,  pur- 
chasing bills  from  those  who  can  draw  and  selling  to 
those  who  wish  to  remit. 

Large  firms  of  merchants  often  have  houses  both  in 
^  America  and  in  England,  or  a  firm  in  one  country  has 
agents  or  correspondents  in  the  other  with  whom  they 
keep  a  running  account.  Not  uncommonly,  the  very 
same  firm  may  be  both  importing  and  exporting,  so  that 
a  direct  balancing  of  their  accounts  will  be  so  far  effected. 
The  remaining  balance  need  only  be  paid  from  time  to 
time  as  opportunity  offers.  Thus,  in  foreign  as  in  home 
trade,  book  credit  serves  in  a  great  degree  to  economize 
the  use  of  money.  Only  when  there  is  a  derangement  of 
the  balance  of  trade,  and  one  country  owes  to  another  a 
preponderating  debt  of  large  amount,  need  specie  be 
transmitted. 

It  is  out  of  the  question  that  I  should,  in  this  small 
treatise,  attempt  to  enter  into  the  intricacies  of  the 
Foreign  Exchanges,  which  have  been  so  admirably 
treated  by  Mr.  Goschen,  in  his  "  Theory  of  the  Foreign 


FOREIGN   BILLS    OF   EXCHANGE.  803 

Exchanges."  The  general  principle  of  the  subject  is, 
that  bills  of  exchange  drawn  on  any  particular  place 
constitute  a  new  kind  of  article,  subject  to  the  laws 
of  supply  and  demand.  Any  circumstance  diminishing 
the  supply,  or  increasing  the  demand,  raises  the  price 
of  such  bills,  and  vice  versa.  The  price  being  raised, 
there  is  additional  profit  on  any  transaction  which  allows 
a  new  supply  of  bills  to  be  drawn.  The  export  of  any 
kind  of  goods  in  greater  quantities  tends  to  restore  the 
balance,  but,  if  requisite,  coin  or  bullion  can  be  sent  at 
a  certain  cost,  and  bills  drawn  against  it.  Thus  the  cost 
of  transmitting  specie  is  the  limit  to  the  premium  on 
bills.  Gold  and  silver  being  everywhere  considered 
a  desirable  possession,  and  being  also  very  portable, 
form,  as  remarked  at  the  outset,  the  natural  currency 
between  nation  and  nation.  If  a  country  were  to  be 
absolutely  denuded  of  specie,  and  had  foreign  debts  to 
pay,  forced  exportation  and  sale  of  the  next  most  gene- 
rally desirable  and  portable  commodity  would  be  the 
only  resource,  and  the  premium  on  bills  might  vary 
to  almost  any  extent  from  par.  Thus  it  is  seen  that, 
in  an  economical  point  of  view,  gold  and  silver  differ 
from  other  merchandise  not  in  kind  but  in  degree. 

The  World's  Clearing  House. 

It  might  seem  that  in  the  use  of  cheques  internally, 
and  of  bills  of  exchange  in  foreign  trade,  we  have 
reached  the  climax  in  the  economy  of  metallic  money ; 
but  there  is  yet  one  further  step  to  make.  We  found 


304  MONEY. 

that  so  long  as  all  the  merchants  of  a  town  keep  their 
cash  with  the  same  banker,  they  have  no  need  to  handle 
the  money  at  all,  but  can  make  payments  by  transfers 
in  the  books  of  their  banker.  Let  us  imagine,  then, 
that  merchants  all  over  the  world  agreed  to  keep  their 
principal  accounts  with  the  bankers  of  any  one  great 
commercial  town.  All  their  mutual  transactions  could 
then  be  settled  among  those  bankers.  An  approximation 
to  such  a  state  of  things  exists  in  the  tendency  to  make 
London  the  monetary  head-quarters  of  the  commercial 
world,  and  the  general  clearing  house  of  international 
transactions. 

All  that  is  needed  to  secure  economy  of  money  is 
centralization  of  transactions,  so  that  there  may  be  the 
wider  scope  for  the  balancing  of  claims.  Before  the 
elaborate  system  of  English  provincial  banking  grew  up, 
considerable  economy  was  effected  by  the  practice  of 
"  drawing  upon  London."  In  every  country  town  many 
persons  wanted  to  transmit  money  to  London,  and  others 
wanted  to  draw  money  from  the  same  place.  To  vast 
private  trading  transactions  with  the  capital  and  prin- 
cipal commercial  towns  was  added  the  whole  of  the  pay- 
ments connected  with  the  collection  and  expenditure  of 
the  public  revenue.  In  each  country  town  some  promi- 
nent trader  discovered  that  profit  was  to  be  made  by 
selling  bills  on  London  to  those  who  wished  to  remit, 
and  buying  with  the  proceeds  the  bills  of  those  who 
had  claims  upon  banks  or  firms  in  London.  The  capital 
thus  becoming  the  monetary  centre,  it  was  often  con- 
venient to  make  payments  to  other  towns  by  bills  upon 


FOREIGN   BILLS   OF   EXCHANGE.  805 

London.  Each  person  wanting  to  remit  was  more 
likely  to  get  a  bill  upon  London  with  ease  than  upon 
any  other  place,  and  it  was  likely  that  the,  creditor 
would  prefer  such  a  bill  to  one  upon  a  town  with  which 
he  had  no  relations.  It  is  obvious  that  if  every  impor- 
tant trader  in  England  kept  his  principal  cash  with  a 
eity  banker,  the  use  of  bills  on  London  would  have 
enabled  all  the  commercial  transactions  of  England  to 
be  centred  in,  and  cleared  through  the  books  cf  these 
bankers  and  the  Clearing  House. 

Centralization  of  Financial  Transactions  in  London. 

There  is  a  similar  advantage  in  centralizing  foreign 
transactions  in  London.  In  the  absence  of  any  general 
centre,  each  two  commercial  towns  must  settle  their 
mutual  transactions  directly  and  separately.  A  merchant 
will  be  receiving  bills  upon  the  bankers  and  merchants 
of  many  other  towns.  There  is  a  double  inconvenience 
in  this.  The  supply  and  demand  for  bills  upon  com- 
paratively small  places  must  be  comparatively  small 
and  variable,  and  the  bills  will  be  drawn  upon  minor 
firms,  of  the  soundness  of  which  it  will  not  be  easy  to 
get  satisfactory  information.  Many  firms,  too,  in  the 
present  day  have  houses  in  several  parts  of  the  world, 
and  it  would  be  more  convenient  that  their  mutual 
transactions  should  be  brought  to  a  centre  somewhere, 
just  as  the  transactions  of  branch  banks  are  brought  to 
a  centre  in  the  head  office.  Thus  there  arises  a  tendency 
to  prefer  bills  drawn  upon  well-known  London  banks, 


306  MONEY. 

or  other  great  London  firms,  whose  credit  is  known 
all  over  the  world,  -and  ceteris  paribus,  such  bills 
will  command  a  readier  acceptance  in  the  exchange 
market.  Persons  having  to  draw  bills  will  get  a  better 
price  if  they  can  draw  upon  London,  which  they  can  do 
by  opening  an  account  with  a  London  firm,  and  arrang- 
ing that  remittances  due  to  them  shall  be  deposited  to 
their  credit  in  London.  It  comes  to  pass  that  a  merchant 
in  America,  Australia,  or  India,  will  prefer  to  receive 
money  in  London  rather  than  anywhere  else.  Every- 
one wishing  to  remit  money  can  then  do  so  in  the  form 
of  a  bill  upon  the  holders  of  these  funds  in  London,  and 
the  fund  will  be  recruited  from  time  to  time  by  similar 
bills  received  and  transmitted  to  London  for  collection. 

This  tendency  to  the  centralization  of  financial 
business  in  London  is  much  promoted  by  the  fact  that 
the  largest  mass  of  cheap  loanable  capital  exists  there. 
The  general  rate  of  interest  in  New  York  is  at  least  2 
per  cent,  higher  than  in  London,  so  that  a  trader  who 
has  credit  enough  to  obtain  loans  in  London,  will  make 
a  profit  by  borrowing  there  rather  than  in  New  York. 
Thus,  instead  of  first  depositing  money  in  London,  and 
afterwards  drawing  against  it,  the  more  usual  and 
profitable  form  of  the  transaction  is  to  get  a  credit 
there,  that  is,  leave  to  draw  against  a  banker,  making 
subsequent  remittances  to  recoup  the  banker  accepting 
and  paying  the  bills.  As  regards  continental  trade, 
Paris,  Berlin,  Vienna,  Hamburg,  and  Amsterdam  are  of 
course  highly  important  centres,  but  recent  wars  have 
occasioned  a  considerable  transfer  of  financial  business 


FOREIGN    BILLS    OF   EXCHANGE.  307 

to  London.  Moreover,  the  great  foreign  trade  of  Eng- 
land, reaching  into  every  quarter  of  the  globe,  and  the 
many  distant  colonies  and  dependencies  which  naturally 
have  financial  relations  with  the  capital  of  the  empire, 
tend  to  give  London  a  unique  position. 

Representation  of  Foreign  Bankers  in  London. 

The  result  of  this  centralization  of  banking  trans- 
actions in  London,  is  that  colonial  and  foreign  bankers 
find  it  very  desirable  to  have  agents,  or  even  head 
offices  in  London.  At  the  present  time  there  are  no 
less  than  60  important  colonial  and  foreign  banks  which 
have  their  own  London  offices  or  houses.  These  include 
the  principal  Australian,  New  Zealand,  and  Indian 
banks,  and  a  number  of  minor  banks,  established  by 
English  capitalists  to  cultivate  the  trade  of  the  minor 
states  of  Europe,  South  America,  China,  and  the  East. 
In  addition  to  the  above  60  banks,  there  are  fully  1000 
foreign  and  colonial  banking  houses  in  correspondence 
with  London  bankers,  so  that  almost  every  town  in  the 
world  which  can  maintain  a  bank  at  all,  has  the  means 
of  correspondence  with  some  member  of  the  London 
banking  system.  The  foreign  bankers  vary  greatly  in  the 
importance  of  their  transactions,  and  some  of  them 
would,  according  to  English  ideas,  be  considered 
merchants  rather  than  bankers ;  but,  in  the  aggregate, 
their  transactions  must  be  exceedingly  large.  It  must 
almost  inevitably  follow  that  transfers  of  money  will  be 
more  and  more  made  through  London.  Just  as  this 


; 


308  MONEY. 

city  is  the  link  of  connection  between  each  English 
country  banker  and  each  other  one,  so  it  may,  and 
probably  will  by  degrees,  become  the  link  between  the 
most  distant  parts  of  the  world.  But  the  greater  becomes 
the  profitable  burden  of  financial  business  thrown  upon 
Lombard  Street  and  Threadneedle  Street,  the  more  it 
behoves  us  to  take  care  that  our  currency  system  is 
maintained  upon  the  soundest  possible  basis.  It  is 
requisite,  too,  that  our  bankers,  financiers,  and  mer- 
chants should  regulate  their  operations  with  a  thorough 
comprehension  of  the  immense  system  in  which  they 
play  a  part,  and  the  risks  of  derangement  and  failure 
which  they  encounter  by  over-severe  competition.  No 
one  doubts  that  alarming  symptoms  have  during  recent 
years  presented  themselves  in  the  London  money  market. 
There  is  a  tendency  to  frequent  severe  scarcities  of  loan- 
able capital,  causing  sudden  variations  of  the  rate  of 
interest  almost  unknown  thirty  years  ago.  I  will  there- 
fore in  the  next  chapter  offer  a  few  remarks  intended 
to  show  that  this  is  an  evil  naturally  resulting  from  the 
excessive  economy  of  the  precious  metals,  which  the 
increasing  perfection  of  our  banking  system  allows  to 
be  practised,  but  which  may  be  carried  too  far  and  lead 
fco  extreme  disaster. 


CHAPTEB  XXIV. 

THE  BANK  OF  ENGLAND  AND  THE  MONEY  MARKET. 

WE  commenced  the  study  of  money  with  the  barter  of 
ordinary  commodities,  and  money  appeared  in  the  first 
place  as  some  common  commodity  handed  about  as  a 
medium  of  exchange.  By  degrees,  however,  the  subject 
assumed  a  greater  and  greater  degree  of  complexity. 
The  metals  took  the  place  of  other  commodities  as 
currency,  and  delicate  considerations  began  to  enter 
concerning  token  and  standard  coins.  From  metallic 
representative  money,  we  passed  to  paper  representative 
money,  and  finally  discovered  that,  by  the  cheque  and 
clearing  system,  metallic  money  was  almost  eliminated 
from  the  internal  exchanges  of  the  country.  Pecuniary 
transactions  now  present  themselves  in  the  form  of  a 
room  full  of  accountants,  hastily  adding  up  sums  of 
money.  But  we  must  never  forget  that  all  the  figures 
in  the  books  of  a  bank  represent  gold,  and  every  creditor 
can  demand  the  payment  of  the  metal.  In  the  ordinary 
state  of  trade  no  one  cares  to  embarrass  himself  with  a 
quantity  of  precious  metal,  which  is  both  safer  and  more 
available  in  the  vaults  of  a  bank.  But  in  international 
trade,  gold  and  silver  are  still  the  media  by  which 


310  MONEY. 

balances  of  indebtedness  must  be  paid,  and  serious 
consequences  may  arise  from  any  disproportion  between 
the  amount  of  transactions  carried  on,  and  the  basis  of 
gold  upon  which  they  are  settled. 

Expansion  of  Trad». 

No  one  doubts  that  in  the  last  thirty  years  there  has 
been  an  immense  expansion  in  the  trade  of  this  and 
most  other  countries.  If,  as  is  very  commonly  done,  we 
take  the  foreign  trade  as  a  test  of  the  general  advance  of 
industry,  we  find  that  the  total  declared  real  value  of 
British  and  Irish  produce  exported  from  the  United 
Kingdom  was,  in  1846,  about  58  millions  sterling.  In 
1866  it  amounted  to  189  millions,  or  more  than  three 
times  as  much.  In  the  mean  time  the  bank-note  cir- 
culation had  remained  almost  unchanged,  and  such 
alteration  as  there  was,  consisted  in  a  decrease.  The 
total  circulation  of  bank-notes,  English,  Scotch,  and 
Irish,  was,  in  1846,  39  millions,  and  in  1866,  38J  millions. 
I  believe,  however,  that  the  best  test  of  the  progress  of 
trade,  both  internal  and  external,  is  furnished  by  the 
out-put  of  coal,  the  mainspring  of  our  wealth.  Now,  in 
1854  the  total  quantity  of  coal  raised  was  about  65 
millions  of  tons,  and  the  note  currency  38  millions ;  in 
1866  the  coal  raised  had  increased  to  101J  millions  of 
tons,  or  by  56  per  cent.,  while  the  note  currency  still 
remained  almost  as  before,  namely,  38J-  millions.  Be- 
tween 1866  and  1874,  indeed,  there  was  a  remarkable 
increase  in  the  circulation,  the  amount  of  which  rose  to 


THE  BANK  OF  ENGLAND  AND  THE  MONEY  MARKET.   811 

£43,912,000,  or  by  14  per  cent.,  but  the  production 
of  coal  had  in  the  mean  time  risen  to  127  millions,  an 
increase,  compared  with  1854,  of  95  per  cent. 

Competition  of  Bankers. 

It  is  quite  apparent,  therefore,  that  the  tendency  is 
to  carry  on  a  greater  and  greater  trade  upon  an  amount 
of  metallic  currency  which  does  not  grow  in  anything 
like  the  same  proportion.  The  system  of  banking,  too, 
grows  more  perfect  in  the  sense  of  increasing  the 
economy  with  which  money  is  used.  The  competition 
of  many  great  banks,  leads  them  to  transact  the  largest 
possible  business  with  the  smallest  reserves  which  they 
can  venture  to  retain.  Some  of  these  banks  pay  divi- 
dends of  from  20  to  25  per  cent,  which  can  only  be 
possible  by  using  large  deposits  in  a  very  fearless  manner. 
Even  the  reserves  consist  not  so  much  of  actual  coins  or 
bank-notes  in  the  vaults,  as  of  money  employed  at  call 
in  the  Stock  Exchange,  or  deposited  in  the  Bank  of 
England,  which  again  lends  the  deposits  out  to  a  certain 
extent. 

Now  the  larger  the  trade  which  is  carried  on,  the 
larger  will  be  the  occasional  demand  for  gold  to  make 
foreign  payments;  and  if  the  stock  of  gold  kept  in 
London  be  growing  comparatively  smaller  and  smaller, 
the  greater  will  be  the  difficulty  in  meeting  the  demand 
from  time  to  time.  Such  is,  I  believe,  the  whole  secret  of 
the  growing  instability  and  delicacy  of  the  money  market 
in  this  country.  There  is  a  larger  and  larger  quantity  of 


312  MONEY. 

claims  for  gold,  and  comparatively  less  gold  to  meet 
~4>them,  so  that  every  now  and  then  there  is  a  natural 
difficulty  in  paying  claims,  and  the  rate  of  interest  has 
to  be  suddenly  raised  to  induce  those  who  have  gold  to 
lend  it,  or  to  induce  those  who  were  demanding  it  to 
forego  their  claims  for  a  time.  Most  people,  it  is  true, 
attribute  all  these  troubles,  either  to  the  much-abused 
gentlemen  who  meet  weekly  in  the  parlour  of  the  Bank 
of  England,  or  to  Sir  Eobert  Peel,  who  established  the 
note  issue  of  the  Bank  upon  the  partial  deposit  system 
already  described  (p.  222). 

The  Bank  Charter  Act  of  1844. 

At  all  times,  during  the  last  two  hundred  years,  there 
has  been  some  currency  topic  upon  the  anvil.  In  early 
days  it  was  the  scarcity  of  silver  coin,  the  South  Sea 
Bubble,  or  the  price  of  the  guinea.  Later  on  came  the 
restriction  of  specie  payments,  the  bullion  report,  the 
one-pound  note  question,  and  the  joint  stock  banks. 
Since  1844,  however,  all  currency  theorists  have  concen- 
trated their  attentions  upon  the  Bank  Charter  Act  of 
that  year,  and,  while  endlessly  differing  about  the  nature 
of  the  remedy,  have  been  unanimous  in  attributing  all 
kinds  of  evils  to  a  settlement  of  our  currency,  which  I 
believe  to  be  a  monument  of  sound  and  skilful  financial 
legislation. 

The  Acts  of  1844  and  1845  placed  a  fixed  limit  upon 
the  amount  of  notes  which  can  in  this  country  be  issued 
without  an  equal  deposit  of  gold.  At  present  (April, 


THE  BANK  OF  ENGLAND  AND  THE  MONEY  MARKET.   313 

1875)  the  Bank  of  England  can  issue,  without  gold,  fifteen 
millions ;  the  private  and  joint  stock  banks  of  England 
are  individually  restricted  to  fixed  amounts,  which,  added 
together,  make  about  £6,460,000,  while  the  Scotch  banks 
can,  in  a  similar  manner,  issue  notes  to  the  amount 
of  £2,750,000,  and  the  Irish  banks  to  the  amount  of 
£6,350,000,  making  in  all  about  30J  millions.  In 
addition  to  this  the  Bank  of  England,  and  the  Scotch 
and  Irish  banks,  can  issue  as  many  more  notes  as  they 
have  deposits  of  bullion  or  coin ;  and  in  the  year  1874, 
the  extra  amount  thus  jssued  was  about  14  J  millions. 
Let  it  be  never  forgotten,  that  no  restriction  is  thus 
placed  upon  the  sum  total  of  the  currency  of  the 
country;  for  the  original  legal  tender  of  the  country 
is  the  coined  sovereign  of  123*274  grains  of  gold,  and 
every  one  who  has  the  gold  can  readily  turn  it  into 
sovereigns.  The  objectors  to  the  Bank  Charter  Act 
urge  that  we  want  more  currency,  but  they  cannot  really 
mean  more  metallic  currency.  We  must  not  look  to 
changes  in  the  law  to  increase  the  amount  of  specie  in 
the  country,  and,  as  I  have  remarked,  any  one  can  get 
sovereigns  if  he  has  the  needful  gold.  This  metal,  again, 
is  only  to  be  had,  in  the  absence  of  gold  mines,  by  that 
state  of  foreign  trade  which  brings  it,  and  does  not  drain 
it  away  again.  The  principal  currency,  in  short,  must 
be  regarded  as  a  commodity,  the  supply  of  which  is  to 
be  left  to  the  natural  action  of  the  laws  of  supply  and 
demand.  The  unrestricted  issue  of  paper  representa-  J 
tive  notes  produces  an  artificial  interference  with  these 
natural  conditions. 


314  MONEY. 

The  Free-banking  School. 

What  the  currency  theorists  want,  then,  is  not  more 
gold,  but  more  promises  to  pay  gold.  The  Free-banking 
School  especially  argue  that  it  is  among  the  elementary 
rights  of  an  individual  to  make  promises,  and  that  each 
banker  should  be  allowed  to  issue  as  many  notes  as  he 
can  get  his  customers  to  take,  keeping  such  a  reserve  of 
metallic  money,  as  he  thinks,  in  his  own  private  discre- 
tion, sufficient  to  enable  him  to  redeem  his  promises. 
But  this  free  issue  of  paper  representative  money  does 
not  at  all  meet  the  difficulty  of  the  money  market,  which 
is  a  want  of  gold,  not  of  paper;  on  the  contrary,  an 
unlimited  issue  of  paper  would  tend  to  reduce  the  already 
narrow  margin  of  gold  upon  which  we  erect  an  enormous 
system  of  trade.  Here  we  reach  the  critical  point  of  the 
whole  theory  of  currency.  There  is  also  a  school  of 
currency  writers,  formerly  represented  in  England  by 
Eicardo  and  Tooke,  who  hold  that  it  is  impossible  to 
over-issue  convertible  paper  money.  Arguments  to  this 
effect  have  been  recently  urged  with  great  ability  by  Mr. 
E.  H.  Inglis  Palgrave,  in  his  work  entitled  "Notes  on 
Banking,"  and  his  wide  acquaintance  with  the  subject 
should  lend  much  force  to  his  opinions.  But  there  is,  to 
my  mind,  an  evident  flaw  in  their  position. 

Possibility  of  Over-issue. 

When  prices  are  at  a  certain  level,  and  trade  in  a 
quiescent  state,  a  single  banker  is,  no  doubt,  unable  to  put 


THE  BANK  OF  ENGLAND  AND  THE  MONEY  MARKET.  315 

into  circulation  more  than  a  certain  quantity  of  bank- 
notes. He  cannot  produce  a  greater  effect  upon  the 
whole  currency  than  a  single  purchaser  can  by  his  sales 
or  purchases  produce  upon  the  market  for  corn  or  cotton. 
But  a  number  of  bankers,  all  trying  to  issue  additional 
notes,  resemble  a  number  of  merchants  offering  to  sell 
corn  for  future  delivery,  and  the  value  of  gold  will  be 
affected  as  the  price  of  corn  certainly  is.  We  are  too 
much  accustomed  to  look  upon  the  value  of  gold  as  a 
fixed  datum  line  in  commerce ;  but,  in  reality,  it  is  a 
very  variable  thing.  The  tables  of  prices  analysed  by 
me  in  the  Statistical  Journal  for  June,  1865,  show  that 
between  1822  and  1825  there  was  an  average  rise  of 
prices  to  the  amount  of  17  per  cent. ;  and  between  1844 
and  1847,  and  1852  and  1857,  the  average  rises  were 
respectively  13  and  31  per  cent.  Such  variations  of 
prices  mean  that  the  value  of  gold  is  itself  altered  in 
the  inverse  ratio;  and  these  variations  are  produced 
mainly  by  extensions  of  credit.  Every  one  who  pro- 
mises to  pay  gold  on  a  future  day,  thereby  increases  the 
anticipated  supply  of  gold,  and  there  is  no  limit  to  the 
amount  of  gold  which  can  thus  be  thrown  upon  the 
market.  Every  one  who  draws  a  bill  or  issues  a  note, 
unconsciously  acts  as  a  "  bear  "  upon  the  gold  market. 
Everything  goes  well,  and  apparent  prosperity  falls 
upon  the  whole  community,  so  long  as  these  promises 
to  pay  gold  can  be  redeemed  or  replaced  by  new  pro- 
mises. But  the  rise  of  prices  thus  produced  turns  the  •$ 
foreign  exchanges  against  the  country,  and  creates  a 
balance  of  indebtedness  which  must  be  paid  in  gold. 


316  MONEY. 

The  basis  of  the  whole  fabric  of  credit  slips  away,  and 
produces  that  sudden  collapse  known  as  a  commercial 
crisis. 

Now,  what  is  time  of  credit  generally,  is  still  more  true 
of  the  special  form  of  credit  involved  in  bank  promissory 
notes.  These  purport  to  be  payable  in  gold  coin  on 
demand,  so  that  they  are  taken  by  every  one  as  equi- 
valent to  the  coin.  Even  bills  of  exchange  can  be  paid  in 
notes,  and  as  regards  internal  trade,  no  difficulty  would 
be  felt  in  maintaining  credit  so  long  as  promises  to  pay 
gold  circulate  instead  of  gold.  But  foreigners  will  not 
hold  such  promises  on  the  same  footing ;  and,  if  the  ex- 
changes are  against  us,  the  metallic,  not  the  paper,  part 
of  the  currency  will  go  abroad.  It  is  at  this  moment 
that  bankers  will  find  no  difficulty  in  expanding  their 
issues,  because  many  persons  have  claims  to  meet  in 
gold,  and  the  notes  are  regarded  as  gold.  The  notes 
will  thus  conveniently  fill  up  the  void  occasioned  by  the 
exportation  of  specie ;  prices  will  be  kept  up,  prosperity 
will  continue,  the  balance  of  foreign  trade  will  be  still 
against  us,  and  the  game  of  replacing  gold  by  promises 
will  go  on  to  an  unlimited  extent,  until  it  becomes 
actually  impossible  to  find  more  gold  to  make  necessary 
payments  abroad. 

Professor  Cliffe  Leslie,  writing  in  Macmillan's  Maga- 
zine for  August,  1864,  correctly  pointed  out,  as  I  think, 
that  speculative  credit  often  raises  prices  for  a  time 
above  their  natural  range.  Eepresentative  credit,  on 
the  other  hand,  by  which  I  suppose  he  means  notes 
'issued  against  the  actual  deposit  of  metal,  obviously 
forms  no  augmentation  of  the  currency,  and  can  have 


THE  BANK  OF  ENGLAND  AND  THE  MONEY  MAR1IET.  317 

no  effect  in  raising  prices  above  the  level  which  would 
exist  under  a  purely  metallic  system. 

The  actual  exhaustion  of  the  bullion  of  a  country  is  no 
mere  ideal  event,  for  it  is  what  occurred  in  this  country 
in  1839,  under  the  free  system  of  note  issue.  The 
Bank  of  England  had  parted  with  almost  the  whole  oi 
its  bullion  and  was  only  saved  from  bankruptcy  by  the 
ignominious  expedient  of  a  large  loan  from  the  Bank 
of  France.  The  narrow  limits  of  this  book  evidently 
restrict  me  from  entering  into  historical  and  statistical 
illustrations,  but  it  may  be  said,  that  the  collapse  which 
followed  the  crisis  of  1839  induced  severer  distress  and 
depression  of  trade  than  has  ever  since  been  known  in 
this  country.  We  now  carry  on  industry  and  commerce 
many  times  greater  than  in  1839,  and  there  is  nothing  to 
indicate  that  either  the  bank  directors  or  the  commercial 
classes  are  more  cautious  or  farseeing  than  they  then 
were.  On  the  contrary,  competition,  speculation,  and 
the  bold  erection  of  the  widest  affairs  upon  the  narrowest 
basis  of  real  capital  is  more  common  than  ever.  Know- 
ing as  we  do  the  very  narrow  margin  of  real  metal 
upon  which  our  many  great  banks  conduct  their  busi- 
ness, it  is  impossible  to  entertain  for  a  moment '  the 
notion  of  allowing  the  paper  currency  of  the  country  to 
rest  upon  the  discretionary  reserves  of  such  competing 
bankers. 

The  Right  of  Coining  Bank  Notes. 

According  to  the  view  which  I  adopt,  the  issue  of 
notes  is  more  analogous  to  the  royal  function  of  coinage 


318  MONEY. 

tlian  to  the  ordinary  commercial  operation  of  drawing 
bills.  We  ought  to  talk  of  coining  notes,  as  John  Law  did ; 
for  though  the  design  is  impressed  on  paper  instead  of 
metal,  the  function  of  the  note  is  exactly  the  same  as 
that  of  a  representative  token.  As  to  the  right  to  issue 
promises,  it  no  more  exists  than  the  right  to  establish 
private  mints.  For  our  present  purposes  that  alone  is 
right  which  the  legislature  declares  to  be  expedient  to 
the  community  at  large.  As  almost  every  one  has  long 
agreed  to  place  the  coinage  of  money  in  the  hands  of  the 
executive  government,  so  I  believe  that  the  issue  of 
paper  representative  money  should  continue  to  be  practi- 
cally in  the  hands  of  the  government,  or  its  agents  acting 
under  the  strictest  legislative  control.  M.  Wolowski,  in 
his  admirable  works  on  banking,  has  maintained  that  the 
issue  of  notes  is  a  function  distinct  from  the  ordinary 
operations  of  a  banker ;  and  Mr.  Gladstone  has  allowed 
that  the  distinction  is  a  wholesome  and  vital  one. 
Bankers  enjoy  the  utmost  degree  of  freedom  in  this 
country  at  present,  in  every  other  point,  so  that  it  is 
wholly  a  confusion  of  ideas-  to  speak  of  the  unrestricted 
emission  of  paper  representative  money  as  a  question  of 
free  banking. 

Professor  Sumner  and  others  have  objected  to  the 
Bank  Charter  Act,  that  it  cannot  be  regarded  as  a 
scientific  settlement  of  the  currency  question,  inasmuch 
as  no  other  nation  had  adopted  the  same  principles. 
Quite  lately,  however,  the  German  Imperial  government 
has  adopted  the  main  principle  of  a  partial  deposit, 
adding  to  it  the  liberty  of  increasing  the  issues  under  a 


THE  BANK  OP  ENGLAND  AND  THE  MONEY  MARKET.   319 

tax  of  5  per  cent.,  an  arrangement  which  I  have  de- 
scribed under  the  name  of  the  Elastic  Limit  System 
(p.  226).  This  provision  appears  to  be  designed  to 
avoid  the  suspension  of  the  law  during  times  of  crisis, 
and  it  is  quite  possible  that  we  might  with  advantage 
introduce  a  similar  modification  into  our  own  currency 
law.  But  the  fine  or  tax  upon  the  excessive  issue  ought 
surely  to  be  much  more  than  5  per  cent.,  and  in  this 
country  should  certainly  not  be  less  than  10  per  cent. 

Scotch  and  English  Banking. 

It  is  common,  indeed,  to  point  to  the  Scotch  banks 
as  a  proof  that  a  perfectly  sound  currency  may  be  fur- 
nished by  banks  acting  on  their  own  unfettered  discretion. 
Up  to  1845,  the  twelve  or  thirteen  Scotch  banks  certainly 
did  possess  the  right  of  freely  issuing  notes  down  to  one- 
pound  notes,  and  only  in  one  or  two  cases  did  bankruptcy 
occur.  All  this  I  grant,  holding  that  Englishmen  and 
Americans,  and  natives  of  all  countries,  may  well  admire 
the  wonderful  skill,  sagacity,  and  caution  with  which 
Scotch  bankers  have  developed  and  conducted  their 
system.  There  is  no  doubt,  too,  that  Scotch  bankers 
are  guiding  the  course  of  development  of  the  banking 
system  in  England,  India,  the  Australian  colonies,  and 
everywhere,  with  conspicuous  success.  If  we  were  all 
Scotchmen,  I  believe  the  unlimited  issue  of  one-pound 
notes  would  be  an  excellent  measure.  But  when  we 
compare  the  Scotch  and  English  banking  systems,  we 
discover  a  profound  difference.  In  Scotland  there  exist 
15 


320  MONET. 

only  eleven  great  banks,  which  take  good  care  that  there 
shall  not  be  a  twelfth  great  bank.  The  undoubted 
monopoly  which  they  possess  is,  however,  used  with 
great  moderation  and  wisdom,  and  by  an  immense 
ramification  of  branches  (p.  258),  every  village  has  its 
banks,  and  every  poor  man  may  have  his  bank  deposit, 
if  he  will  save  a  few  pounds.  In  England  and  Wales  we 
have  267  private  and  121  joint  stock  banks,  or,  in  all, 
388  banking  firms,  including  in  these  numbers  the 
London  banks,  but  not  including  any  of  the  numerous 
branch  banks.  There  is,  no  doubt,  a  tendency  to 
approximate  to  the  Scotch  system  by  the  amalgamation 
of  smaller  banks.  Still  many  new  banks  are  from  time 
to  time  started,  and  the  competition  between  them  is  of 
the  keenest  character.  The  high  dividends  expected  by 
the  shareholders  can  only  be  earned  by  bold  trading  on 
small  reserves,  and  every  commercial  man  is  aware  that 
the  money  market  is  becoming  more  and  more  sensitive. 

Cash  Reserves  of  Bankers. 

It  is  important,  but  very  difficult  to  decide,  what  is 
the  amount  of  real  cash  held  by  the  bankers  of  the 
United  Kingdom  in  readiness  to  meet  their  liabilities. 
Many  banks  publish  balance-sheets  professing  to  show 
the  reserve  of  ready  money.  I  have  already  remarked 
(pp.  248-250)  upon  the  ambiguity  which  attaches  to  the 
words  money  and  cash  as  commonly  used;  and,  when  we 
inquire  into  the  nature  of  the  banker's  ready  money,  it 
is  found  to  consist  in  a  great  degree  of  money  invested 


THE  BANK  OP  ENGLAND  AND  THE  MONEY  MARKET.    321 

in  government  securities,  deposited  with  other  bankers, 
especially  the  Bank  of  England,  or  held  "  at  call,"  that 
is,  lent  to  speculators  who  invest  it  in  negotiable  secur- 
ities. From  the  published  balance-sheets  we  thus  get 
no  indication  of  the  real  metallic  reserve  of  the  country, 
available  for  the  payment  of  foreign  debts. 

Mr.  E.  H.  Inglis  Palgrave,  in  his  important  "Notes 
on  Banking,"  published  both  in  the  Statistical  Journal, 
for  March,  1873  (Vol.  xxxvi.  p.  106),  and  as  a  separate 
book,  has  given  the  results  of  an  inquiry  into  this  subject, 
and  states  the  amount  of  coin  and  Bank  of  England 
notes,  held  by  the  bankers  of  the  United  Kingdom,  as 
not  exceeding  four  or  five  per  cent,  of  their  liabilities,  or 
from  one  twenty-fifth  to  one  twentieth  part.  Mr.  T.  B. 
Moxon,  of  Stockport  and  Manchester,  has  subsequently 
made  an  elaborate  inquiry  into  the  same  point,  and  finds 
that  the  cash  reserve  does  not  exceed  about  seven  per 
cent,  of  the  deposits  and  notes  payable  on  demand. 
He  remarks  that  even  of  this  reserve  a  large  propor- 
tion is  absolutely  indispensable  for  the  daily  transactions 
of  the  bankers'  business,  and  could  not  be  parted  with. 
Thus  the  whole  fabric  of  our  vast  commerce  is  found  to 
depend  upon  the  improbability  that  the  merchants  and 
other  customers  of  the  banks  will  ever  want,  simul- 
taneously and  suddenly,  so  much  as  one-twentieth  part 
of  the  gold  money  which  they  have  a  right  to  receive 
on  demand  at  any  moment  during  banking  hours. 


322  MONEY. 

Remedy  for  the  Sensitiveness  of  the  Money  Market 

The  present  state  of  things  in  England  is  not  to  be 
cured  by  any  legislation.  No  government  can  save 
those  from  trouble  who  will  make  unlimited  trans- 
actions in  gold,  without  a  sure  prospect  of  finding  the 
gold  when  wanted.  It  is  absurd  to  suppose  that  any 
single  establishment  like  the  Bank  of  England,  itself 
becoming  hardly  more  important  than  some  of  the  great 
city  banks,  can  prop  up  the  whole  fabric  of  English 
commerce. 

The  only  measure  which  can  restore  stability  to  the 
London  market,  or  prevent  it  from  becoming  more  and 
more  sensitive,  is  to  secure  by  some  means  the  existence 
of  more  satisfactory  cash  reserves,  either  in  actual  coin, 
or  in  Bank  of  England  notes,  representing  deposits  of 
coin  in  the  Bank  vaults.  It  would  be  01  comparatively 
little  use,  however,  for  some  banks  to  become  more 
prudent  and  self-denying,  while  others  are  allowed  to 
stretch  their  resources  to  the  utmost  possible  point,  and 
outbid  the  more  prudent  banks  in  the  rates  of  dividend 
they  can  pay.  Combined  action,  therefore,  seems  requisite, 
somewhat  in  the  manner  suggested  by  Mr.  Bagehot,  as 
regards  the  city  bankers. 

As  the  Bank  of  England  pays  no  interest  upon  the 
eight  millions  which  it  on  the  average  of  the  last  four 
years  holds  as  the  deposits  of  the  London  bankers,  there 
seems  to  be  no  sufficient  reason  why  the  Bank  should  be 
allowed  to  make  a  profit  out  of  so  large  a  sum.  If  held 
by  a  committee  of  the  depositing  banks  it  would  be  equally 


THE  BANK  OF  ENGLAND  AND  THE  MONEY  MARKET.   323 

safe,  almost  equally  available,  and  might,  moreover,  by 
the  investment  of  a  portion  in  government  stock,  yield  a 
profit  to  the  depositors.  It  may  be  asked,  Why  not  leave 
each  bank  to  hold  its  own  reserve  in  its  own  vaults? 
But  there  would  then  be  no  security  against  some  banks 
running  their  reserves  dangerously  low,  and  trusting  to 
extrinsic  aid  in  times  of  difficulty.  One  objection  which 
I  should  make  to  the  scheme  as  put  forth  is,  that 
government  stock  should  not  be  allowed  to  form  any 
part  of  the  ultimate  reserve.  When  loanable  capital  is 
very  scarce,  such  stock  can  only  be  converted  into  actual 
bullion  by  forced  sales  which  depreciate  the  funds,  shock 
public  confidence,  and  drain  away  money  from  those  who 
would  in  some  other  channel  have  employed  it  in  the 
money  market.  Unless  government  stocks  be  sent 
abroad,  their  sale  cannot  possibly  increase  the  stock 
of  gold  in  the  country.  A  cash  reserve  ought  to  be 
composed  of  cash,  and  although  it  may  be  very  con- 
venient to  bankers  to  use  this  word  in  a  loose  and 
ambiguous  manner,  it  ought  not  to  mean,  in  speaking  of 
the  ultimate  reserves  of  the  country,  anything  but  gold 
coin  or  bullion,  or  warrants,  actually  issued  against  coin 
or  bullion,  on  the  deposit  system  previously  considered. 

It  has  been  pointed  out,  moreover,  in  an  able  article 
in  the  Bankers'  Magazine  for  February,  1875,  that  the 
proposed  scheme  would  be  very  insufficient  if  carried  out 
merely  by  a  narrow  circle  of  city  bankers.  The  associa- 
tion should  include,  in  one  way  or  another,  all  the  more 
important  banks  in  the  three  kingdoms.  The  vast  trade 
of  the  country  cannot  be  placed  upon  a  sound  basis  until 


324  MONEY. 

the  force  of  public  opinion  among  bankers  imposes  upon 
each  member  the  necessity  of  holding  a  cash  reserve 
bearing  a  fair  proportion  to  the  liabilities  incurred.  It 
matters  little  who  holds  the  reserve,  provided  it  actually 
does  exist  in  the  form  of  metal,  and  is  not  evaporated 
away  by  being  placed  at  call,  or  deposited  with  other 
banks  which  make  free  use  of  it.  In  the  absence  of  some 
common  action  among  bankers,  it  is  certain  that  the 
sensitiveness  of  the  money  market  will  increase,  and  it 
is  probable  that  commercial  crises  will  from  time  to  time 
recur,  even  exceeding  in  their  violence  and  disastrous 
consequences  those  whose  history  we  know  too  well. 


CHAPTEE  XXV. 

A  TABULAR  STANDAED  OF  VALUE. 

AT  the  outset  it  was  observed  that  money,  besides  serving 
as  a  common  denominator  of  value,  and  as  a  medium  to 
facilitate  exchange,  was  usually  employed  likewise  as  the 
standard  of  value,  in  terms  of  which  contracts  extending 
over  long  series  of  years  are  expressed.  In  letting  land 
on  long  or  perpetual  leases,  in  lending  money  to  govern- 
ments, corporations,  and  railway  companies,  it  is  the 
general  practice  to  make  the  interest  and  capital  repay- 
able in  legal  tender  gold  money.  But  there  is  abundance 
of  evidence  to  prove  that  the  value  of  gold  has  undergone 
extensive  changes.  Between  1789  and  1809,  it  fell  in 
the  ratio  of  100  to  54,  or  by  46  per  cent.,  as  I  have 
shown  in  a  paper  on  the  Variation  of  Prices  since  1782, 
read  to  the  London  Statistical  Society  in  June,  1865. 
From  1809  to  1849  it  rose  again  in  the  extraordinary 
ratio  of  100  to  245,  or  by  145  per  cent.,  rendering 
government  annuities  and  all  fixed  payments,  extending 
over  this  period,  almost  two  and  a  half  times  as  valuable 
as  they  were  in  1809.  Since  1849  the  value  of  gold  has 
again  fallen  to  the  extent  of  at  least  20  per  cent.;  and  a 


326  MONEY. 

careful  study  of  the  fluctuations  of  prices,  as  shown 
either  in  the  Annual  Eeviews  of  Trade  of  the  Economist 
newspaper,  or  in  the  paper  referred  to  above,  shows  that 
fluctuations  of  from  10  to  25  per  cent,  occur  in  every 
credit  cycle. 

Corn  Rents. 

The  question  arises  whether,  having  regard  to  these 
extreme  changes  in  the  values  of  the  precious  metals, 
it  is  desirable  to  employ  them  as  the  standard  of  value 
in  long  lasting  contracts.  We  are  forced  to  admit 
that  the  statesmen  of  Queen  Elizabeth  were  far-seeing 
when  they  passed  the  Act  which  obliged  the  colleges  of 
Oxford,  Cambridge,  and  Eton,  to  lease  their  lands  for 
corn  rents.  The  result  has  been  to  make  those  colleges 
far  richer  than  they  would  otherwise  have  been,  the 
rents  and  endowments  expressed  in  money  having  sunk 
to  a  fraction  of  their  ancient  value. 

I  believe  that  there  is  no  legal  impediment  in  the 
way  of  a  landlord  leasing  his  lands  at  present  for  a  corn 
rent,  or  an  iron,  or  coal,  or  any  other  rent.  All  that  the 
law  requires  is  that  the  contract  shall  be  perfectly  definite, 
and  of  exactly  determinate  meaning,  so  that  the  kind  of 
commodity  intended,  and  the  quantity  of  that  commodity, 
shall  be  exactly  ascertainable.  But  the  law,  in  defining 
legal  tender  money,  provides  against  misapprehensions 
concerning  money  payments,  whereas  there  is  no  security 
that  mistakes  and  difficulties  will  not  arise  in  taking 
other  commodities  as  the  matter  of  rents.  Moreover 


A  TABULAR  STANDARD  OF  VALUE.          327 

any  single  commodity,  such  as  corn  or  coal,  undergoes 
considerable  fluctuations  from  year  to  year,  and  as 
regards  periods  of  ten  or  twenty  years,  might  prove 
not  to  be  so  good  a  standard  as  silver  or  gold.  Com- 
modities which  are  comparatively  steady  in  value  on  the 
average  of  long  periods  may  be  subject  to  great  tem- 
porary variations  of  supply  or  demand. 

A  Multiple  Legal  Tender. 

The  question  thus  arises  whether  the  progress  of 
economical  and  statistical  science  might  not  enable  us 
to  devise  some  better  standard  of  value.  We  have  seen 
(pp.  136-143)  that  the  so-called  double  standard  system 
of  money  spreads  the  fluctuations  of  supply  and  demand 
of  gold  and  silver  over  a  larger  area,  and  maintains  both 
metals  more  unchanged  in  value  than  they  would  other- 
wise be.  Can  we  not  conceive  a  multiple  legal  tender, 
which  would  be  still  less  liable  to  variation  ?  We  estimate 
the  value  of  one  hundred  pounds  by  the  quantities  of 
corn,  beef,  potatoes,  coal,  timber,  iron,  tea,  coffee,  beer, 
and  other  principal  commodities,  which  it  will  purchase 
from  time  to  time.  Might  we  not  invent  a  legal  tender 
note  which  should  be  convertible,  not  into  any  one  single 
commodity,  but  into  an  aggregate  of  small  quantities  of 
various  commodities,  the  quantity  and  quality  of  each 
being  rigorously  denned  ?  Thus  a  hundred  pound  note 
would  give  the  owners  a  right  to  demand  one  quarter  of 
good  wheat,  one  ton  of  ordinary  merchant  bar  iron,  one 
hundred  pounds  weight  of  middling  cotton,  twenty  pounds 


328  MONEY. 

of  sugar,  five  pounds  of  tea,  and  other  articles  sufficient 
to  make  up  the  value.  All  these  commodities  will,  of 
course,  fluctuate  in  their  relative  values,  but  if  the 
holder  of  the  note  loses  upon  some,  he  will  in  all 
probability  gain  upon  others,  so  that  on  the  average 
his  note  will  remain  steady  in  purchasing  power.  Indeed, 
as  the  articles  •  into  which  it  is  convertible  are  those 
needed  for  continual  consumption,  the  purchasing  power 
of  the  note  must  remain  steady  compared  with  that  of 
gold  or  silver,  which  metals  are  employed  only  for  a  few 
special  purposes. 

In  practice,  such  a  legal  tender  currency  would 
obviously  be  most  inconvenient,  since  no  one  would 
wish  to  have  a  miscellaneous  assortment  of  goods  forced 
into  his  possession.  He  who  wanted  corn,  would  have 
to  sell  to  other  parties  the  iron,  beef,  and  other  things 
received  along  with  it ;  gold,  or  other  metallic  money, 
would  doubtless  be  used  as  the  medium  in  these  ex- 
changes. This  scheme  would,  therefore,  resolve  itself 
practically  into  that  which  has  been  long  since  brought 
forward  under  the  title  of  the  Tabular  Standard  of 
Value. 

Lowe's  proposed  Table  of  Reference. 

Among  valuable  books,  which  have  been  forgotten,  is 
to  be  mentioned  that  by  Joseph  Lowe  on  "  The  Present 
State  of  England  in  regard  to  Agriculture,  Trade,  and 
Finance,"  published  in  1822.  This  book  contains  one 
of  the  ablest  treatises  on  the  variation  of  prices,  the 


A  TABULAE  STANDAKD  OF  VALUE.          329 

state  of  the  currency,  the  poor-law,  population,  finance, 
and  other  public  questions,  of  the  time  in  which  it  was 
published,  that  I  have  ever  met  with.  In  Chapter  IX. 
Lowe  treats,  in  a  very  enlightened  manner,  of  the 
fluctuations  in  the  value  of  money,  and  proceeds  to 
propound  a  scheme,  probably  invented  by  him,  for 
giving  a  steady  value  to  money  contracts.  He  proposes 
that  persons  should  be  appointed  to  collect  authentic 
information  concerning  the  prices  at  which  the  staple 
articles  of  household  consumption  were  sold.  In  regard 
to  corn  and  sugar  authoritative  returns  were  then,  and 
have  ever  since  been,  published  in  the  London  Gazette, 
and  there  seemed  to  be  no  difficulty  in  extending  a  like 
system  to  other  articles.  Having  regard  to  the  com- 
parative quantities  of  commodities  consumed  in  a  house- 
hold, he  would  then  frame  a  table  of  reference,  showing 
in  what  degree  a  money  contract  must  be  varied  so  as  to 
make  the  purchasing  power  uniform.  In  principle  the 
scheme  seems  to  be  perfectly  sound ;  but  Lowe  did  not 
attempt  to  work  out  the  practical  details,  and  his  plan 
involves  needless  difficulties. 

Poulett  Scrope's  Tabular  Standard  of  Value. 

A  very  similar  scheme  was  independently  proposed, 
about  eleven  years  later,  by  Mr.  G.  Poulett  Scrope,  the 
well-known  writer  on  geology  and  political  economy.  In 
a  very  able  but  now  forgotten  pamphlet,  called  "An 
Examination  of  the  Bank  Charter  Question,  with  an 
Inquiry  into  the  Nature  of  a  Just  Standard  of  Value  " 


330  MONEY. 

(London,  1833),  Mr.  Scrope  suggests  (p.  26)  that  a 
standard  might  be  formed  by  taking  an  average  of  the 
mass  of  commodities  which,  even  if  not  employed  as 
the  legal  standard,  might  serve  to  determine  and  correct 
the  variations  of  the  legal  standard.  The  scheme  was 
also  described  in  Mr.  Scrope's  interesting  book  on  the 
Principles  of  Political  Economy,  published  in  the  same 
year  (p.  406),  and  in  the  second  edition  of  the  same 
book,  called  "Political  Economy  for  Plain  People," 
issued  two  years  ago,  (p.  308).  The  late  Mr.  G.  E. 
Porter,  without  referring  to  previous  writers,  gave  the 
same  scheme  in  1838,  in  the  first  edition  of  his  well- 
known  treatise  on  "  The  Progress  of  the  Nation," 
(Sections  III.  and  IV.  p.  235).  He  added  a  table  show- 
ing the  average  fluctuations  of  fifty  commodities  monthly 
during  the  years  1833  to  1837. 

Such  schemes  for  a  tabular  or  average  standard  of 
value  appear  to  be  perfectly  sound  a::id  highly  valuable 
in  a  theoretical  point  of  view,  and  the  practical  diffi- 
culties are  not  of  a  serious  character.  To  carry  Lowe's 
and  Scrope's  plans  into  effect,  a  permanent  government 
commission  would  have  to  be  created,  and  endowed 
with  a  kind  of  judicial  power.  The  officers  of  the  de- 
partment would  collect  the  current  prices  of  commodities 
in  all  the  principal  markets  of  the  kingdom,  and,  by  a 
well-defined  system  of  calculations,  would  compute  from 
these  data  the  average  variations  in  the  purchasing 
power  of  gold.  The  decisions  of  this  commission  would 
be  published  monthly,  and  payments  would  be  adjusted 
in  accordance  with  them.  Thus,  suppose  that  a  debt  of 


A  TABULAR  STANDARD  OF  VALUE.          831 

one  hundred  pounds  was  incurred  upon  the  1st  of  July, 
1875,  and  was  to  be  paid  back  on  1st  July,  1878 ;  if  the 
commission  had  decided  in  June,  1878,  that  the  value  of 
gold  had  fallen  in  the  ratio  of  106  to  100  in  the  inter- 
vening years,  then  the  creditor  would  claim  an  increase 
of  6  per  cent  in  the  nominal  amount  of  the  debt. 

At  first  the  use  of  this  national  tabular  standard 
might  be  permissive,  so  that  it  could  be  enforced  only 
where  the  parties  to  the  contract  had  inserted  a  clause  to 
that  effect  in  their  contract.  After  the  practicability  and^ 
utility  of  the  plan  had  become  sufficiently  demonstrated, 
it  might  be  made  compulsory,  in  the  sense  that  every 
money  debt  of,  say,  more  than  three  months'  standing, 
would  be  varied  according  to  the  tabular  standard,  in  the 
absence  of  an  express  provision  to  the  contrary. 

Difficulties  of  the  Scheme. 

The  difficulties  in  the  way  of  such  a  scheme  are  not 
considerable.  It  would,  no  doubt,  introduce  a  certain 
complexity  into  the  relations  of  debtors  and  creditors, 
and  disputes  might  sometimes  arise  as  to  the  date  of  the 
debt  whence  the  calculation  must  be  made.  Such  diffi- 
culties would  not  exceed  those  arising  from  the  payment 
of  interest,  which  likewise  depends  on  the  duration  of 
the  debt.  The  work  of  the  commission,  when  once  estab- 
lished and  directed  by  Act  of  Parliament,  would  be  little 
more  than  that  of  accountants  acting  according  to  fixed 
rules.  Their  decisions  would  be  of  a  perfectly  bond  fide 
and  reliable  character,  because,  in  addition  to  their 


332  MONEY. 

average  results,  they  would  be  required  to  publish 
periodically  the  detailed  tables  of  prices  upon  which 
their  calculations  were  founded,  and  thus  many  persons 
could  sufficiently  verify  the  data  and  the  calculations. 
Fraud  would  be  out  of  the  question. 

The  only  real  difficulty  which  I  foresee,  is  that  of  de- 
ciding upon  the  proper  method  of  deducing  the  average. 
According  to  the  method  which  I  should  advocate,  a 
considerable  number  of  commodities,  say  100,  should 
be  chosen  with  special  regard  to  the  independence  of 
their  fluctuations  one  from  another,  and  then  the 
geometrical  average  of  the  ratios  in  which  their  gold 
prices  have  changed  would  be  calculated  logarithmically. 
This  is  the  method  which  I  employed  in  my  pamphlet 
on  the  "  Serious  Fall  in  the  Value  of  Gold,  etc. "  and 
in  the  paper  on  the  Variations  of  Prices  since  1782, 
previously  referred  to  (p.  323).  A  somewhat  similar 
method  had  been  previously  employed  by  Mr.  New- 
march.  In  the  annual  Commercial  History  and  Eeview 
of  the  Economist  newspaper,  there  has,  for  many  years, 
appeared  a  table  containing  the  Total  Index  Number 
of  prices,  or  the  arithmetical  sum  of  the  numbers  ex- 
pressing the  ratios  of  the  prices  of  many  commodities 
to  the  average  prices  of  the  same  commodities  in  the 
years  1845-50.  Whatever  method  were  adopted,  how- 
ever, the  results  would  be  better  than  if  we  continued 
to  accept  a  single  metal  for  the  standard,  as  we  do  at 
present. 

The   space   at  my  disposal  will   not   allow  me    to 
describe  adequately  the  advantages  which  would  arise 


A  TABULAR  STANDARD  OF  VALUE.         333 

from  the  establishment  of  a  national  tabular  standard 
of  value.  Such  a  standard  would  add  a  wholly  new 
degree  of  stability  to  social  relations,  securing  the  fixed 
incomes  of  individuals  and  public  institutions  from  the 
depreciation  which  they  have  often  suffered.  Specula- 
tion, too,  based  upon  the  frequent  oscillations  of  prices, 
which  take  place  in  the  present  state  of  commerce, 
would  be  to  a  certain  extent  discouraged.  The  calcula- 
tions of  merchants  would  be  less  frequently  frustrated 
by  causes  beyond  their  own  control,  and  many  bankrupt- 
cies would  be  prevented.  Periodical  collapses  of  credit 
would  no  doubt  recur  from  time  to  time,  but  the  in- 
tensity of  the  crises  would  be  mitigated,  because  as 
prices  fell  the  liabilities  of  debtors  would  decrease 
approximately  in  the  same  ratio. 


834  MONEY. 


CHAPTER  XXVI. 

THE  QUANTITY  OF  MONEY  NEEDED  BY  A  NATION. 

IT  might  seem  natural  that  one  most  important  point 
for  discussion  in  an  Essay  on  Money  would  be  the 
quantity  of  money  required  by  a  nation.  Nothing  would 
seem  more  desirable  than  to  decide  how  much  each  person 
needs  of  paper,  gold,  silver,  or  bronze  currency,  so  that 
the  government  might  take  care  to  provide  sufficient  for 
every  one.  In  almost  every  country  great  complaints 
have  from  time  to  time  been  made  as  to  the  scarcity  of  the 
circulating  medium,  and  the  urgent  need  of  more.  All 
the  evils  of  the  day,  the  slackness  of  trade,  falling  prices, 
declining  revenue,  poverty  of  the  people,  want  of  employ- 
ment, political  discontent,  bankruptcy,  and  panic,  have 
been  attributed  to  the  want  of  money,  the  remedy 
suggested  being  in  former  days  the  setting  of  the  mint 
to  work,  and  in  later  times  the  issue  of  paper  money. 

The  true  answer  to  all  such  complaints  is  that  no 
one  can  tell  how  much  currency  a  nation  requires,  and 
that  to  attempt  to  regulate  its  quantity  is  the  last  thing 
which  a  statesman  should  do.  In  almost  every  case 
the  apparent  scarcity  of  currency  arises  from  unskilful 
management  of  the  metallic  currency,  bad  regulation  of 


THE  QUANTITY  OF  MONEY  NEEDED  BY  A  NATION.    335 

paper  representative  money,  illegitimate  speculation,  or 
some  unsoundness  in  commerce  which  would  be  aggra- 
vated by  a  further  increase  of  the  paper  currency.  We 
shall  find  that  to  ascertain  how  much  money  is  needed 
by  a  nation  is  a  problem  involving  many  unknown 
quantities,  so  that  a  sure  solution  can  never  be  obtained. 

Quantity  of  Work  to  be  done  by  Money. 

To  decide  how  much  money  is  needed  by  a  nation, 
we  must,  firstly,  determine  the  quantity  of  work  which 
money  has  to  do.  This  will  be  proportional,  ceteris 
paribus,  to  the  number  of  the  population;  twice  the 
number  of  people,  if  equally  active  in  trade  and  per- 
forming it  in  the  same  way,  will  clearly  want  twice  as 
much  money.  It  will  be  proportional,  again,  to  the 
activity  of  industry,  and  to  the  complexity  of  its  organ- 
ization. The  more  goods  are  bought  and  sold,  and  the 
more  often  they  pass  from  hand  to  hand,  the  more 
currency  will  be  needed  to  move  them.  It  will  be  pro- 
portional, again,  to  the  prices  of  goods ;  and  if  gold  falls 
in  value,  and  prices  are  raised,  more  money  will  be 
needed  to  pay  the  debts  increased  in  nominal  amount. 

Few  of  the  quantities  concerned  in  such  consider- 
ations are  known.  We  know  the  number  of  the  popu- 
lation approximately,  and  the  amount  of  foreign  trade, 
but  the  quantities  of  goods  bought  and  sold  in  inland 
trade  are  almost  entirely  unknown.  It  is  needless  to 
dwell  on  this  side  of  the  question,  as  our  knowledge  is 
still  more  defective  in  other  respects. 


336  MONEY. 

Efficiency  of  the  Currency. 

By  the  efficiency  of  the  currency  we  mean  the 
average  number  of  exchanges  effected  by  each  piece  of 
money  in  a  unit  of  time,  such  as  a  year.  The  aggregate 
work  done  by  money  will  be  measured  by  its  quantity 
multiplied  into  the  average  number  of  times  which 
each  coin  or  note  passes  from  hand  to  hand  during  the 
year.  Now  we  know  very  imperfectly  what  is  the 
quantity  of  currency  in  most  countries,  and  we  know 
nothing  at  all  as  to  the  average  rapidity  of  circulation. 
Some  coins,  especially  small  silver  or  bronze  coins, 
may  pass  several  times  in  the  course  of  a  day.  Other 
coins  or  notes  may  be  kept  in  the  pocket  for  weeks,  or 
may  be  laid  by  for  months  and  years.  I  have  never 
met  with  any  attempt  to  determine  in  any  country 
the  average  rapidity  of  circulation,  nor  have  I  been 
able  to  think  of  any  means  whatever  of  approaching 
the  investigation  of  the  question,  except  in  the  inverse 
way.  If  we  knew  the  amount  of  exchanges  effected,  and 
the  quantity  of  currency  used,  we  might  get  by  division 
the  average  number  of  times  the  currency  is  turned 
over ;  but  the  data,  as  already  stated,  are  quite  wanting. 

There  is  no  doubt  that  the  rapidity  of  circulation 
varies  very  much  between  one  country  and  another.  A 
thrifty  people  with  slight  banking  facilities,  like  the 
French,  Swiss,  Belgians,  and  Dutch,  hoard  coin  much 
more  than  .an  improvident  people  like  the  English,  or 
even  a  careful  people  with  a  perfect  banking  system  like 
the  Scotch.  Many  circumstances,  too,  affect  the  rapidity 


THE  QUANTITY  OF  MONEY  NEEDED  BY  A  NATION.    337 

of  circulation.  Kailways  and  rapid  steamboats  enable 
coin  and  bullion  to  be  more  swiftly  remitted  than  of 
old ;  telegraphs  prevent  its  needless  removal,  and 
the  acceleration  of  the  mails  has  a  like  effect.  A 
decrease  in  the  circulation  of  country  bank-notes  in 
England,  in  1842,  was  attributed  to  the  effect  of  the 
penny  postal  reform  in  facilitating  presentation  of  notes 
by  post. 

Effects  of  the  Cheque  and  Clearing  System. 

Far  more  important  than  these  considerations  is  the 
fact  that,  where  an  extensive  banking  system  exists,  only 
a  portion  of  the  exchanges  are  actually  effected  by 
money.  I  do  not  lay  much  stress  upon  the  use  of  bills 
of  exchange  as  replacing  money,  because  the  degree  in 
which  they  are  so  used  must  be  comparatively  limited, 
and  they  are  rather  articles  bought  and  sold  with 
money  than  money  itself.  But  we  have  traced  out  step 
by  step  the  way  in  which  the  cheque  and  clearing 
system  enables  debts  to  be  balanced  off  against  each 
other,  so  that  the  money  is  never  touched  at  all,  and 
only  intervenes  as  the  unit  of  value  in  which  sums  are 
expressed.  Almost  all  large  exchanges  are  now  effected 
by  a  complicated  and  perfected  system  of  barter.  In  the 
London  Clearing  House,  transactions  to  the  amount  of,  at 
least,  £6,000,000,000  in  the  year  are  thus  effected,  without 
the  use  of  any  cash  at  all,  and,  as  I  have  before  explained, 
this  amount  gives  no  adequate  idea  of  the  exchanges 
arranged  by  cheques,  because  so  many  transactions  are 


338  MONEY. 

really  cleared  in  provincial  banks,  between  branches, 
agents,  or  correspondents  of  the  same  bank,  or  between 
banks  having  the  same  London  agents. 

If  our  knowledge  of  the  amount  of  transactions  in 
England  is  highly  imperfect,  we  know  still  less  of  the 
way  in  which  payments  are  effected  in  other  countries. 
The  New  York  Clearing  House  transactions  are  very 
extensive,  as  we  have  seen,  and  there  is  an  elaborate 
banking  system  extending  over  all  the  States  of  the 
Union ;  but  it  would  require  much  investigation  on  the 
spot  to  enable  any  one  to  form  a  notion  whether  the 
correspondence  between  these  banks  enables  them  to 
economize  currency  as  much  as  the-  English  system  of 
London  agencies.  In  France .  and  most  continental 
countries  the  cheque  and  clearing  system  can  hardly 
be  said  to  exist  except  in  some  of  the  large  towns.  Paris 
has  an  incipient  clearing  house,  and  the  Bank  of  France, 
moreover,  makes  transfers  between  clients  to  the  extent 
of  two  or  three  millions  daily.  All  banks  will  to  a 
certain  extent  economize  currency,  and  those  of  Amster- 
dam and  Hamburg  have  for  some  centuries  carried  on  a 
system  of  transfers,  the  true  prototype  of  our  system. 

Considerable  changes,  it  is  true,  are  taking  place  in 
the  mode  of  conducting  business  in  some  parts  of  the 
Continent.  Professor  Cliffe  Leslie,  who  is  well  known 
to  be  intimately  acquainted  with  the  economical 
systems  of  the  continental  countries,  attributes  the 
rise  of  prices  in  Germany  in  a  great  degree  to  the 
quicker  circulation  of  the  money,  and  the  freer  use  oi 
instruments  of  credit.  In  the  Fortnightly  Review  for 


THE  QUANTITY  OP  MONEY  NEEDED  BY  A  NATION.    339 

November,  1870  (pp.  568-9),  he  says  :— "  The  improve- 
ments in  locomotion  and  in  commercial  activity  which 
have  so  largely  augmented  the  money-making  power 
of  the  Germans,  have  also  quickened  prodigiously  the 
circulation  of  money;  and  the  development  of  credit, 
likewise  following  industrial  progress,  has  added  to 
the  volume  of  the  circulating  medium  a  mass  of  sub- 
stitutes for  money  which  move  with  greater  velocity. 
A  much  smaller  amount  of  money  than  formerly  now 
suffices  to  do  a  given  amount  of  business,  or  to  raise 
prices  to  a  given  range ;  and  to  the  increased  amount 
of  actual  money  now  current  in  Germany  we  must  add 
a  brisk  circulation  of  instruments  of  credit.  Were  the 
circulating  medium  composed  of  coin  alone,  whatever 
the  amount  of  the  precious  metals  issuing  from  the 
mines,  or  circulating  in  other  countries,  and  whatever 
the  price  of  German  commodities  in  markets  abroad, 
no  rise  in  the  prices  of  German  commodities  at  home 
could  take  place  without  additional  coin  to  sustain  it." 

So  different,  then,  are  the  commercial  habits  of 
different  peoples,  that  there  evidently  exists  no  propor- 
tion whatever  between  the  amount  of  currency  in  a 
country  and  the  aggregate  of  the  exchanges  which  can 
be  effected  by  it.  Even  if  we  had  reliable  statistics  of 
the  amounts  of  currencies,  such  data  should  be  regarded 
as  indicating,  not  the  comparative  abundance  or  scarcity 
of  money,  but  the  degree  of  civilization,  of  providence,  or 
of  complexity  of  banking  organization,  in  the  country. 


340  MONEY. 

Conclusion. 

From  all  the  above  considerations  it  follows  that  the 
only  method  of  regulating  the  amount  of  the  currency  is 
to  leave  it  at  perfect  freedom  to  regulate  itself.  Money 
must  find  its  own  level  like  water,  and  flow  in  and  out 
of  a  country,  according  to  fluctuations  of  commerce 
which  no  government  can  foresee  or  prevent.  The 
manner  in  which  paper  notes  may  be  used  to  represent 
and  replace  part  of  the  metallic  currency  should  be 
strictly  regulated,  because  otherwise  belief  in  the  exist- 
ence of  metallic  monsy  is  created  when  there  is  no  such 
money  to  warrant  the  belief.  But  the  amount  of  money 
itself  can  be  no  more  regulated  than  the  amounts  of 
corn,  iron,  cotton,  or  other  common  commodities  produced 
and  consumed  by  a  people.  It  must  be  allowed,  indeed, 
to  be  no  easy  matter  to  discriminate  precisely  and 
soundly  between  those  points  at  which  the  legislator 
must  interfere  in  the  management  of  the  currency  and 
lay  down  a  fixed  rule,  and  those  points  at  which  perfect 
freedom  must  be  maintained. 

A  comparison  of  our  present  laws  regarding  currency 
and  trade,  with  those  which  existed  in  this  country 
from  the  tenth  to  the  fourteenth  century,  will  show  a 
curious  double  progress.  Many  things  which  our 
ancestors  attempted  to  regulate  by  law  are  now  left 
free  by  general  consent,  and  other  things  which  they 
left  free,  or  nearly  so,  are  now  strictly  regulated.  The 
rates  of  wages,  the  price  of  the  quartern  loaf,  the  exercise 


THE  QUANTITY  OF  MONEY  NEEDED  BY  A  NATION.    841 

of  various  trades,  were  then  the  subject  of  legislation, 
though  we  now  know  that  they  cannot  be  properly 
brought  within  the  scope  of  legislative  control.  On  the 
other  hand,  an  endless  diversity  of  weights  and  measures 
were  formerly  used  in  different  parts  of  the  country, 
and  little  or  no  attempt  was  made  to  reduce  them  to  any 
system  or  precise  definition.  Almost  every  important 
town,  too,  had  its  mint  in  the  earlier  centuries,  and 
barons  and  great  ecclesiastics  often  exercised  the  right 
of  issuing  their  own  money.  There  are  still  a  very  few 
persons  who  advocate  free  coinage;  but,  by  almost 
general  consent,  the  work  of  coining  metallic  money  is 
now,  in  every  civilized  country,  committed  to  the  care  of 
the  state.  We  provide  for  a  uniform  system  of  coins 
with  the  same  care  that  we  establish  a  national  system 
of  weights  and  measures.  But  while  we  thus  take  the 
greatest  care  of  the  metallic  currency  in  one  respect,  we 
have  utterly  abandoned  all  the  futile  attempts  which 
were  in  former  centuries  made  to  bring  bullion  into  the 
kingdom  in  order  to  set  the  mint  to  work. 

We  must  deal  with  the  paper  currency  in  an 
analogous  manner,  and  regulate  it  both  more  and 
less  than  hitherto.  Private  issues  should  disappear  like 
private  mints,  and  each  kingdom  should  have  one 
uniform  paper  circulation,  issued  from  a  single  central 
state  department,  more  resembling  a  mint  than  a  bank. 
The  manner  of  issuing  this  paper  currency  should  be 
strictly  regulated  in  one  sense ;  the  paper  circulation 
should  be  made  to  increase  and  diminish  with  the 
amount  of  gold  deposited  in  exchange  for  it.  At  the 


342  MONEY. 

same  time,  no  thought  need  be  taken  about  the  amount 
so  issued.  The  purpose  of  the  strict  regulation  is  not  to 
govern  the  amount,  but  to  leave  that  amount  to  vary 
according  to  the  natural  laws  of  supply  and  demand. 
In  my  opinion,  it  is  the  issue  of  paper  representative 
notes,  accepted  in  place  of  coin,  which  constitutes  an 
arbitrary  interference  with  the  natural  laws  governing 
the  variations  of  a  purely  metallic  currency,  so  that 
strict  legislative  control  in  one  way  leads  to  more  real 
freedom  in  another.  I  am  quite  willing  to  allow,  how- 
ever, that  questions  of  great  nicety  and  subtlety  arise  in 
this  subject,  and  that  only  in  the  gradual  progress  of 
economic  science  can  thev  be  finally  set  at  rest. 


INDEX. 


ABRASION  of  coins,  83, 157, 164 

Aes,  41,  45,  52;  rude,  53;  grave,  91 

African  Barter  Company,  2 

African  money,  93 

Agent  banks,  259 

Agio,  72,  200 

Alternative  standard,  137 

Aluminium,  132 

American     money     (see      United 

States) 
Amsterdam,   banks   of,    200,    221, 

254 

Aristotle  on  money,  88 
As,  22,  91 

Assignats,  202,  228,  232,  246 
Australian  sovereigns,  154 
Austrian   money,    126,    136,  140 
Austro-Hungarian  money,  148,  160 


B 


BABBAGE,  CHARLES,  267 
Bagehot,  Walter,  92,  322 
Bankers'  bank,  256,  292 

cheques,  242 

competition  of,  311 

Bankers'  Magazine,  322 

Bank  money,  200 

Bank-notes.  239  ;  weight  of,  203 

Bank  of   England,  111,  114,  222; 


monopoly  of  coinage,  117; 
supplies  silver  coin,  118 ;  bul- 
lion office,  212 ;  bank-notes, 
215,  313 ;  in  1839,  317 ;  bank- 
ers' deposits,  322 

Bank  of  France,  231,  338 

Bank  Charter  Act,  116,  222,  225, 
312 

Bank  shares,  speculation  in,  210 

Bank-system,  single,.  252;  com- 
plex, 255  ;  branch,  257  ; 
agency,  259 

Barter,  1,  6,  8,  77,  189 ;  restor. 
ation  of,  288 

Belgium,  money  of,  49,  103,  130 

Bernardakis,  M.,  196,  198 

Billon,  125 

Bills  of  exchange,  191,  244,  299  ; 
history  of,  300  ;  trade  in,  302 

Bills  of  lading,  207 

Binary  system,  181 

Book  credit,  251 

Boulton  and  Watt,  121,  123 

letter  of,  65 

Branch  banks,  number  of,  258 

Brazil,  money  of,  147 

Bronze  coin,  128 ;  French,  74 ; 
English,  110,  129,  164 ;  stag- 
nation of,  131 ;  penny,  124 

Buenos  Ayres,  paper  money  of,  234 

Bullion  report,  230 

trade  of  Bank  of  England 

in,  117 


16 


344 


INDEX. 


Bunnah,  money  of,  44,  89 
Byzantine  money,  29,  195 


CACAO  nuts  as  money,  26,  33 

Canadian  money,  73 

Capital,  derivation  of  name,  23 

Carthaginian  money,  197 

Cash,  Chinese  money,  58,  65,  90 ; 

ambiguity  of  word,  249,  323  ; 

proportion  of  in  payments,  285 
Cattle  as  currency,  22 
Cent,  187 

Centime  pieces,  124,  128,  185 
Certified  cheques,  243 
Chanibre  des  Compensations,  279 
Chattel,  derivation  of  name,  23 
Cheque  and  clearing  system,  192, 

242,  283,  337 
Cheque  Bank,  243,  290 
Cheques,  240 ;  circulated  in  Queens- 
land, 241 ;  crossed,  243 
Chevalier,  M.  Michel,  30,  57, 69, 86, 

92,.  137,  202,  245 
Chili,  147 

Chinese  money,  58,  97, 142, 148, 197 
Clazomenian  money,  204 
Clearing  House,  257  ;  London,  202, 

337  ;  of  the  world,  303 
Clipped  coins,  199 
Coal  raised  in  Great  Britain,  310 
Cognizability,  40 
Coin,  17,  25,  27,  57 
Coinage,  amount  at  English  Hint, 

163 

—  Act,  76,  105,  107,  116 ;  of 

United  States,  146 
Coining,  invention  of,  55  ;  a  royal 

prerogative,  65 ;  of  bank-notes, 

318 

Colonial  currencies,  134,  147 
Colouring  of  coins,  126 
Compensatio  ad  pensum,  90 
Compensatory    action    of    double 

standard,  139 


Composite  coin,  127 

legal  tender,  101 

Confederate  States  notes,  2C3 

Conveyance,  cost  of,  35 

Copper,  35,  45  ;  price  of,  110,123; 

objections  to,  125 
Corn  as  money,  25,  35 

rents,  326 

Counterfeit,  coin,  59  ;  sous,  126 

Counting  boards,  161 

Country  bankers,  supply  of  silver 

coin  to,  119 

clearing,  261 

Courcelle-Seneuil,  86, 137, 139,198 

Cours  forctf,  76 

Cowry  shells,  24,  33,  71 

Credit,  238;  and  debit  exchanges, 

278 

Currency  by  weight,  88 
weight  of,  130 

D 

DECIMAL  system,  172,  175,  182 

Demurrage,  116 

Denarii  notched,  80 

Denmark,  money  of,  1  iO,  14.7 

De  Parieu,  M.,  174 

Deposit  banks,  199 

Diamonds,  value  of,  36 

Divisibility,  38 

Dock  warrants,  207 

Dollar,  93,  95;    valuation  of,  72; 

sizes  of,  156;  American,  172, 

174,  178,  187 
Double  standard,  136 

eagle,  156,  159 

Drachma,  54 
Ducat  pieces,  151, 156 
Dumas,  Ernest,  63 
Duodecimal  system,  181 
Duplication,  method  of,  162 


EAGLE,  156,  159 
Economist,  326,  332 


INDEX. 


345 


Efficiency  of  currency,  336 

Egypt,  money  of,  147 

English  money,  98 

Etruscan  money,  53 

Exchange,  8;  medium  of,  4;  ratios 

of,  5 ;  theory  of,  10 
Exchange  and  Mart,  The,  4 

F 

FARE,  Dr.,  157 
Farthing,  97,  110 
Fee,  derivation  of,  22 
Feer.Herzog,  M.,  95,  137,  158 
Fineness,  of    silver  money,    103  ; 

remedy  in,  109  ;  of  gold  and 

silver,  151  ;  of  gold,  158  ;  of 

French  silver  money,  154 
Finland,  money  of,  149 
Five-franc  piece  in  gold,  178 
Five-pound  piece,  159 
Florin,    97;    English,    160,    176; 

Austrian,  174 
Formosa,  money  of,  58 
Fourpenny  pieces  pawned,  213 
Franc,  171,  174, 185 
Free-banking  school,  314 
Free-issue  system,  230 
French   money,   71,   76,   99,    124, 

127, 128  ;  copper  money,  103  ; 

amount  of  small  money,  130  ; 

currency,     144 ;    mint,     169 ; 

commission  of  inquiry,  174 
Functions  of  money,  13,  16 

G 

GAMING,  39 

Garbling,  81 

Gamier,  M.  Joseph,  30,  86,  92 

German  empire,  monetary  system, 
104,  126,  129 ;  nickel  coinage, 
50 ;  demand  for  gold  by,  140 ; 
fineness  of  proposed  crown- 
piece,  152 ;  wear  of  coin, 
159 ;  reform  of  monetary 
system,  180,  279;  bank  law, 
226,  318 


Gladstone,  W.  E.,  16,  21,  43,  318 

Glasgow,  pig-iron  stores,  210 ;  set. 
tlement  in  iron  market,  283 

Gold,  beauty  of,  34 ;  character- 
istics of,  47 ;  bullion,  116 ; 
probable  discoveries,  143 ; 
standard,  174;  weight,  202; 
value,  315 

coin,  deficiency  of  weight,  111 

Goldsmiths'  notes,  201 

Government  bonds,  246 

Graham,  Professor  Thomas,  133, 
153,  177 

Greece,  money  of,  147 

Greenback  currency,  179,  232 

Gresham's  Law,  64,  80,  99,  112 

Guernsey  market  notes,  204 

Guinea,  value  of,  98,  103 

Guinea-pieces,  28 


n 


HABIT,  force  of,  32,  78,  214 

Halfpenny,  110 

Half-sovereign,  107 

Halifax  currency,  74 

Hamburg,  Bank  of,  200,  221,  254 

Harris,  essay  on  mone}'-,  30 

Hatchett,  experiments  of,  153 

Hebrew  money,  45 

Hendriks,  Frederick,  137,  172. 

Herschel,  Sir  John,  133 

Hertz,  James,  290 

Holland,  money  of,  135 

Homogeneity,  37 

Hudson  Bay  Company's  trade,  20 

Hungary  (see  Austro-Hungarian) 


IMPRESSIBILITY,  40 

In -clearing,  266,  272,  278 

Indestructibility,  36 

India,  money  of,  95,  142,  148 

Insurance  broker's  business,  251 

Interest  on  bills,  245 


346 


INDEX. 


Interest,  loss  of,  284 
International  money,  167 
Iridium,  36 
Irish  money,  52 

banks,  note  issues  of,  313 

Iron  money,  35,  43,  96 

Issues  of  provincial  banks,  313 

Italy,  money  of,  103, 129, 130,  142, 

216 
Itzibu,  Japanese  coin,  84 


JAMAICA,  nickel  coinage  of,  50 
Japan,   money    of,    58,    84;    iron 

money,     43 ;      new    metallic 

currency,  147 


KESITAH,  Hebrew  coin,  89 
Kobang,  84 
Kossuth's  bonds,  233 
Kreutzer  pieces,  126 


LACEDEMONIAN  money,  35,  195 

Land  reserve,  2l9 

Langton,  Wiliiatn,  286 

Law,  John,  228,  318 

Lead,  43,  44 

Least  current  weight  of  coins,  107, 

111,  157 

Leather  money,  20,  127,  195,  197 
Legal  tender,  76,  107 ;    single,  96  ; 

multiple,  98,  327;  composite, 

102 ;  limited  in  silver  coinage, 

110,  145 

Leslie,  Professor  Cliffe,  316 
Life  of  sovereign,  157 
Light  gold  coin,  111,  113 
Liverpool,  Lord,  102,  108,  136 
Liverpool  Clearing  House,  269 

cotton  market,  281,  282 

use  of  cheques  in,  280 


Livre,  89 

Locke  on  credit,  238 

Loi  du  7  Germinal,  an  XI.,  100, 140, 
144 

Lombard  Street  Clearing  House,263 

London,  banking  system  of,  192 ; 
goldsmiths,  221  ;  bank  agen- 
cies, 260 ;  Clearing  House, 
262,  265 ;  drawing  upon,  304 ; 
centralization  of  financial 
business  in,  305 ;  foreign 
bankers  in,  307 

Lowe,  Joseph,  328 

Lowe,  Kobert,  105 

Lubbock,  Sir  John,  265,  285 


MACLEOD,  H.  D.,  230 
Macute,  71 

Maize,  as  money,  25,  27 
Manchester    Clearing  House,  269, 
277,  279 

use  of  notes  in,  286 

cotton  trade,  288 

Mancus,  71 
Mandats,  228,  234 
Manganese,  132 
Marchandise  banale,  4 
Marco  Polo,  197 
Maria  Theresa  dollar,  79,  156 
Mark,  71 ;  new  German  coin,  180 
Massachusetts,  money  of,  44,  99 
Maundy  money,  109,  125 
Measure  of  value,  5,  13 
Medium  of  exchange,  4 
Melting  gold,  cost  of,  38,  48 
Metals,    declining   values   of,   42; 
•  alloys  of,  51 ;  equivalent  weights 

of,  123 

Metallic  value,  75 
Mexican  dollar,  79,  169,  170 
Mil,  176,  186 
Miller,  F.  B.,  154 
Milling  of  coin,  60 
Milreis,  184 


INDEX. 


847 


Miufc,  the  English,  120 ;  regulations 
for  coining  gold,  116 ;  cost  of, 
165 

Mirabeau's  proposals,  100 

Monetary,  Conference  of  1867, 
177;  Convention,  144-5,  173; 
technology,  134 

Money,  of  account,  70 ;  Anglo- 
Saxon,  70  ;  definition  of  Eng- 
lish, 77  ;  representative,  191 ; 
definition  of  money,  248 

market,  322 

Monnaie  d' appoint,  122 

Montesquieu,  71 

Morison,  K.,  280 

Moxon,  T.  B.,  321 

N 

NATIONAL  BANK  currency,  224 

debt,  246 

New  South  Wales,  token  money  in, 

195 

New  York  Clearing  House,  278 
Newcastle  Clearing  House,  269 
Newton,  Sir  Isaac,  98 
Nickel,  49, 132 
Nix,  E.  W.,  269 
Nominal  value,  75 
Norway,  money  of,  72, 78,  126, 140, 

147 


OBOLUS,  54 

Oil  as  currency,  25 

Ora,  71 

Osmium,  36 

Out-clearing,  266,  270,  278 

Oxen  as  currency,  21,  33,  35 


PALGRAVE,  R.  H.  INGLIS,  325,  286, 

314 
Paper  money,  236 


Parallel  standards,  95 

Paris  Clearing  House,  279 

Patina  of  bronze,  129 

Peag  currency,  o3 

Pecunia,  22 

Penny,  110,  123,  124;    weight  of, 

45 ;    composite,    127 ;    penny 

and  ten-franc  scheme,  176 
Percy,  Dr.,  132 
Persian  money,  56,  59,  198, 
Pheidon,  inventor  of  money,  56 
Picking  and  culling,  81,  112 
Pig-iron  warrants,  208,  210 
Platinum,  48 
Porcelain  coins,  42 
Portability,  34 
Porter,  GK  E,,  330 
Portugal,  money  of,  147,  171,  184 
Postage  stamps,  233 
Post-office     money     orders,    294 ; 

savings  bank,  297 
Pound  and  mil  scheme,  176 

sterling,  89,  171,  174,  184 

Precious  stones,  37,  40 
Price  of  silver,  141,  143,  163 
Prices,  variation  of,  315,  325,  332 
Profit  on  coinage,  111 
Promises,    specific     and    general, 

209 ;  freedom  of,  211 
Promissory  notes,  206 
Prussian  historical  money,  63 


RAILWAY  Clearing  House,  280 

Ratio  of  exchange,  5,  10 

Reciprocity  of  trade,  299 

Recoinage  of  French  bronze  money, 
128 

Rei,  184,  186 

Remedy,  for  sovereign,  106;  for 
shilling,  109 

Reserve,  minimum,  223 ;  propor- 
tional, 223 ;  documentary,  227 ; 
real  property,  228 ;  bankers', 
322 


348 


INDEX. 


Ketumed  cheques,  266,  276 

Ricardo,  David,  314 

Ring  money,  54 

Roberts,  W.  C.,  132,  133.  137 

Rogers,  Rev.  J.  E.  T.,  73 

Roman  money,  45,  85,  122 

Rouble,  71 

Roumania,  money  of,  147 

Rupee,  148 

Russia,  early  currency  of,  20; 
platinum  money,  48  ;  metal- 
lic money,  71,  149  ;  paper 
money,  202,  232,  235;  gov- 
ernment bank,  222 


S 


SALT  as  money,  28 

Savings  banks,  296 

Scales,  use  in  making  payments, 
88 ;  in  counting  coin,  161 

Scotland,  currency  of,  142 ;  bank- 
ing system,  257,  319 ;  bank- 
note issues,  313 

Scrope,  Poulett,  329 

Seignorage,  74,  163,  181 

Sequin,  151 

Seyd,  Ernest,  110,  110,  121,  137, 
157,  173 

Smiling,  71,  108,  176 

Siamese  money,  55 

Silver,  46  ;  penny  of,  36,  70,  97 ; 
English  coin,  75,  96;  supply 
of  coin,  118 ;  ratio  of  value  to 
gold,  108 ;  price  of,  137 ;  wear 
of,  158;  weight  of,  202. 

Singapore,  money  of,  94 

Skat,  derivation  of,  23 

Skilling,  126 

Skins  as  currency,  20,  33,  193 

Slaves  as  currency,  23 

Smith,  Adam,  200 

Sou,  186 

Sous  de  cloche,  128 

South  American  money,  93 


Sovereign,  105;  light,  113; 
weighed  at  Bank  of  England, 
116  ;  weight  of,  153  ;  Austra- 
lian, 154 ;  least  current 
weight,  157 ;  international 
currency,  170 

Spanish  dollar,  94 ;  money,  147 

Spencer,  Herbert,  34,  64,  82 

Stability  of  value,  38 

Stafford,  William,  30 

Standard  of  value,  14  ;  fineness  of 
silver,  75 ;  fineness  of  gold, 
105 

Steel  coins,  133 

Stephenson,  Robert,  280 

Stock  certificates,  247 

Stock  Exchange  Clearing  House, 
281 

Storch,  Henri,  33,  196 

Stycas,  52 

Sumner,  Professor  W.  G.,  236,  318 

Sweating  of  coin,  114 

Sweden,  money  of,  129, 140,  147 ; 
copper  money,  45,  58,  97 ; 
rixdaler,  95 

Switzerland,  money  of,  103,  145  ; 
small  money,  134 ;  wear  of 
gold  coin,  157 

Sycee  silver,  148 

Syracusan  money,  203 


TABULAR  standard,  328 

Tael,  90 

Tallies  of   exchequer,  196;    tally. 

checks,  296 
Tartar  money,  198 
Ten-franc  piece,  176,  187 
Theory  of  political  economy,  10 
Threepenny  pieces,  125,  155 
Thrimsa,  71 
Tin  money,  44,  127,  203 
Tobacco  as  currency,  27,  33,  202 
Token  money,  74,  83,  194,  203 
Tooke,  Thomas,  314 


INDEX. 


849 


Tower  of  London,  201 

Trade,  expansion  of,  310 

Tradesmen's  tokens,  65,  103,  195 

Truck,  troc,  3,  7  ' 

Turgot,  53 

Turkey,  money  of,  147 


UNITED  STATES,  money  of,  49,  72, 
94,  104,  129,  178,  183,  187; 
ratio  of  gold  to  silver,  146  ; 
thickness  of  coins,  155 ;  in- 
terest-bearing currency,  246; 
National  Bank  currency,  224 

Utility,  9,  32 


VALJE,  9,  11 ;  measure,  5;  stand- 
ard, 14  j  store,  15 ;  stability, 
38 ;  unit,  67  ;  sense  of,  68 ; 
intrinsic,  75 ;  metallic,  75 


Yaughan,  Rice,  30 
Virginian  money,  202 

W 

WAGES  paid  by  cheque,  295 
Wallace,  A.  R.,  2 
Walras,  Leon,  10,  30 
Wampumpeag  currency,  24,  33 
Warrants,  gold,  189 ;  pig-iron,  208 
Webster  on  paper  currency,  236 
West  Indies,  money  of,  93 
Wilson,  Rivers,  177 
Winkler,  Dr.  Clemens,  132 
Wolowski,  Louis,  1,  100,  137,  139, 

140,  235,  318 
Wooden  money,  29 
Wood's  halfpence,  75 
Wrottesley,  Lord,  175 

Z 

ZEND  AVESTA,  fees  mentioned  in,  23 


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